Fund managers are overwhelmingly bullish on emerging markets, despite indications that a short-term correction could be looming. The latest Bank of America Merrill Lynch Fund Managers Survey, seen as a barometer of sentiment in the financial markets, found that 56 per cent of fund managers were overweight in emerging markets, just one point off the all-time high in 2004.
Despite this, fewer managers than a month earlier expect a stronger mainland economy in the next 12 months.
According to Carl Berrisford, director, UBS wealth management research, emerging market equities, particularly those in Asia, are favoured for two reasons. They are in growth regions, and there is a scarcity of growth in economies in Europe and the United States. Lax monetary policy from the US and euro zone are bringing liquidity into the region, which is reflating different asset classes.
'This combination of high growth in a global environment in which there's a scarcity premium for growth and the fact that you have liquidity in Asia because of loose monetary conditions is positive, although there are inflationary concerns,' he says.
UBS's preferred markets for equities include the mainland, India and Hong Kong, the latter because it's the major conduit for investing on the mainland and is pegged to the US dollar, which means it's importing liquidity that is reflating assets, equities and property.
Citibank is focusing on three regions - Asia, with the strongest economic growth over the past few years; Latin America, which stands to benefit in the medium- to long-term from the US dollar downtrend and commodity demand pick-up; and emerging Europe, which includes Russia and central European countries such as Hungary.