LONDON, June 14 U.S. and Chinese growth fears have pushed investors to almost halve overweight positions on Chinese stocks in the last month, while cutting Mexico allocations to 18-month lows, a Bank of America-Merrill Lynch poll showed on Tuesday.
The poll showed emerging markets remained the favourite region, with a net 23 percent overweight, though this is down from last month's 29 percent. The long term average is 26 percent, said Michael Penn, global equity strategist at BoA-ML.
Fund managers remained overweight China but the overweight is now at 33 percent compared to 58 percent last month and is now the lowest since February. Penn said the reading on Chinese growth expectations had fallen to the lowest since January 2009.
"The view on China is deteriorating very rapidly, there is an increase in belief that we will get a hard landing in China," Penn told Reuters. "People are less confident in the Chinese authorities' ability to manage the slowdown in a stable way."
China's inflation accelerated to its fastest level in almost three years, while industrial output grew a solid 13 percent versus year-ago levels, data showed on Tuesday. The central bank moved to raise banks' reserve requirements, reflecting its determination to slow the economy and cool inflation.
Penn said growing bearishness about the world's No. 2 economy was partly why investors moved to underweight on the energy sector for the first time this year.
There are also worries that the economic recovery in the United States is stuttering, with recent jobs and manufacturing data all coming in below expectations.
That has hit attitudes towards Mexico, which is heavily reliant on exports to its giant northern neighbour.
The BoA-ML survey showed investors going underweight Mexico in June versus an overweight position last month.
"What we have now is the biggest underweight since December 2009 and that reflects the double dip concerns in the United States," Penn said.
However despite the fall in energy allocations, commodity play Russia retained its place as fund managers' favourite emerging market. Overweight positions rose to 67 percent in June, from 53 percent last month, the poll showed.
"We saw a big increase in Russia overweights despite the worry over commodities and it reflects the fact that investors are gaining more confidence in the spending power of the Russian domestic consumer," Penn said.
India too gained, with underweight positions scaled back to 20 percent from the previous month's 47 percent -- the smallest underweight in six months, the poll showed.
This is despite data that has shown inflation quickening and first quarter economic growth slumping to a five-quarter low. The central bank is expected to raise interest rates this week after 250 basis points of rate rises since March 2010.
Indian stocks are down more than 10 percent this year and Penn said the cheaper valuations in what has always been perceived as an expensive market were luring in some buyers.
"But this is more likely a short-term trade than belief that the long-term outlook is rosy," he added.
Intriguingly, investors who had gone underweight Turkish stocks last month for the first time in over three years, swung back into an overweight of around 20 percent in June, the poll showed, possibly reflecting hope that with elections past, the central bank would revert to a more orthodox monetary policy.
For a story on broader findings of the poll [ID:nLDE75D1AP]
(Editing by Ron Askew)