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By Natsuko Waki
LONDON Feb 18 Investors grew even more
pessimistic about the developing world in February, with a
majority saying the biggest threat to the stability of global
financial markets was turmoil in emerging markets, a survey
showed on Tuesday.
A monthly fund managers survey by Bank of America Merrill
Lynch showed investors' cash balance jumped to 4.8 percent, the
highest since July 2012, as investors remained concerned about
over-stretched equity valuations.
A net 29 percent of investors are underweight emerging
equities, a record low for the survey, which dates back to 2001.
The net reading shows the difference between overweight and
underweight positions. Some 175 people, who manage combined
assets of $456 billion, were polled.
The main concern is coming from China's growth outlook. The
number of investors expecting a weaker Chinese economy over the
next year rose to a net 40 percent from 28 percent in January.
Growth expectations also eased at a global level. A net 56
percent forecast a stronger economy, down from 75 percent.
The possibility of China's hard landing or a collapse in
commodity prices remained investors' biggest tail risk.
"Investors are moderating their global growth outlook a
little bit. Investors are pretty much washing their hands of
emerging market risks these days," said John Bilton, the
European investment strategist at BofA-ML.
"You still have this underlying fear over China,
specifically credit market conditions. We need to see more
decisive action from the People's Bank of China. I would be
looking for loan and money-supply data and commodity demand as a
chance for EM to have a bit of catch up."
Some 77 percent of investors said emerging markets posed
potential risks to financial market stability, followed by
monetary risks -- that included higher interest rates and
A net 3 percent of investors think equities are expensive,
partly explaining a jump in cash balance.
Within emerging markets, nearly all the respondents said
they were underweight South Africa. They cut their positioning
in Russia to neutral.
"There is a concern about the rand," Bilton said. "What it
is punished for is the weakness persisting in the commodity
market. "That said, remember South Africa actually has a number
of high-quality companies When we see a period of de-risking in
global markets, South Africa oddly enough is one of the emerging
market countries that can do a little better because of its low
(Editor Larry King)