Global investors turn underweight on India

Global emerging market investors turned underweight (bearish) on Indian equities in September from being overweight (bullish) last month, a Bank of America-Merrill Lynch (BofA-ML) survey of fund managers for the month showed.

According to the findings of the survey, Asia-Pacific investors also continued to remain underweight on India in September.

On the other hand, emerging market investors sharply increased their positions in China as confidence in the country’s growth improved. In the survey, 11 per cent respondents expected the Chinese economy to strengthen over the next 12 months. Around 39 per cent were bearish on the country in July.

“Renewed optimism in Chinese economic growth provides some hope of an improvement in investor sentiment in the coming months. The question is whether China is a sufficient catalyst to spark a change,” said Michael Hartnett, chief global equities strategist at BofA Merrill Lynch Research.

Russia and Brazil still remain the favourite markets for emerging market investors. Overall, growth uncertainty and risk aversion led to a trimming of emerging market allocations. A net 32 per cent respondents are overweight on emerging markets, down from 38 per cent last month.

According to the survey, global investors are approaching the fourth quarter of 2010 with a heightened sense of caution.

One key signal of low risk appetite is large numbers of investors simultaneously saying that equities are undervalued and bonds are overvalued. The spread in perceived valuations of bonds and equities has ballooned to more than 100 points for the first time since the survey started measuring it in early 2003.