EM equities a value trap with weak earnings outlook: BofA-ML survey

Global fund managers' positioning in emerging market (EM) equities remains near record low levels as they perceive the region to be "a value trap" with weak earnings outlook, a Bank of America Merrill Lynch (BofA-ML) survey says.

According to the global financial services major, the other risk factors for EM equities include a sharply slowing China, continuing headwinds from a stronger US dollar and higher bond yields.

A recession in China followed by a geo-political and emerging market debt crisis remains the biggest tail risk for global investors, the report said, adding that investors think China is likely to slow to 5.5 per cent by 2018 -- down from 5.9 per cent last month.

According to BofA-ML survey, based on its Asia-Pacific ex-Japan investor panelists, China, Korea and Taiwan are most overweight countries.

On the contrary, investors are consistently underweight on Australia, Indonesia and Malaysia and have further bumped up their underweight position in Australia.

As for India, the report said that after falling to neutral last month from most overweight, the country edged up "marginally".

Sector-wise, except industrials, pharma and insurance, global fund managers remain underweight on all other sectors in the Asia-Pacific, ex-Japan.

Meanwhile, for the first time since 2006, the Federal Reserve hiked interest rate by 25 basis points after keeping them at near-zero levels for a prolonged period.

While the move was widely expected, there were concerns that Fed hiking interest rate could result in increased outflow of foreign funds from EMs like India.