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Posted inEmerging MarketsEquities

EMs and energy out in the cold as managers go long on the dollar

The survey canvassed 162 managers with combined AUM of £286bn between 7 and 13 August, and showed record levels of negativity towards EMs and the energy sector, with allocation underweights of 2.5% and 2.7% respectively.

Furthermore, the discrepancy between fund manager positioning in developed markets and EMs is at its most extreme since records began in 2001, with EM relative positioning at around -57%.

The divergence stems from investors favouring eurozone and Japanese equity markets, with long US dollar as the preferred play. That said, 45% of investors think that long US dollar is the most crowded trade, followed by 17% that cite long US high yield.

The survey results chime in very well with recent tendencies in Expert Investor Europe’s Fund Manager Sentiment Survey, which shows asset managers’ return expectations from emerging market equities are currently at record lows.

Investors exiting the energy space primarily shifted their weightings to telecoms and healthcare – allocations to which are now at three-year and two-year respective highs – as well as utilities.

Discretionary consumer spending and banks are also currently in favour, accounting for average portfolio overweights of 1.8% and 1.5% respectively.

Downbeat mood

Expectations of economic growth have sunk to a 10-month low, with just 37% of investors forecasting the global recovery to continue – compared to 62% in March – while inflation expectations are the weakest for six months.

Emerging markets are weighing on managers’ minds, with two in three citing the fallout from China’s ongoing economic slowdown and renminbi devaluation alongside the EM debt crisis as the biggest tail-risks.

Accordingly, while cash weightings in portfolios are down since the July survey, they remain high at 5.2% as investors wait for market volatility to cool down.

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