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Sunday, June 22, 2008 12:19:57 PM
UKT: U.S. regains investment favor as China, India lose appeal on inflation fears
China and India lose their appeal for investors on inflation fears
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 11:17pm BST 20/06/2008
The world's fund managers are pulling their money out of China and India at a record pace on mounting fears of inflation and are now more pessimistic about global equities than at any time in the past decade.
Are fund managers waving goodbye to investment in China?
The latest survey of investors by Merrill Lynch shows that Europe has become the most unpopular region, while Britain is still trapped in the doldrums.
But the big surprise is the sudden change in view on the emerging powers of Asia, as overheating and spiralling oil costs spoil the boom.
"World growth is slowing and yet central banks might still have to tighten monetary policy, that is what is scaring people," said David Bowers, the organiser of the survey. The vast majority of fund managers think earnings forecasts have lost touch with reality.
The exodus from China reached fever pitch this month as investors slashed their net "weighting" position to -58, down from -14 in May. The Shanghai bourse had already fallen by almost half since October.
The fund managers have been slow to sense the danger.
India fell to -63 as investors took fright at the country's budget and trade deficits. There is concern over a relapse towards Nehru-era policies after Delhi halted trading in a range of commodity futures and restricted rice exports.
The survey of 204 fund managers worldwide suggests that the love affair with emerging markets is going cold.
The net weighting was -63 for Chile, -47 for Taiwan, -37 for Korea and -32 for Poland.
Mr Bowers said investors no longer believe that the bloc has a grip on inflation. They are discriminating between the commodity producers and those that rely on imports of oil, minerals and food.
"Saudi Arabia is not the same as Turkey," he said.
Fund managers are still super-bullish on Russia, betting that the energy boom has life yet. A net 62pc are overweight oil and gas shares. The most hated trio are travel and leisure (-66), banks (-62) and property (-60).
Karen Olney, Merrill's European equity strategist, said oil is nearing its cycle peak. "Is the trade too crowded? Probably. As long as fundamentals remain strong, we retain our overweight stance," she said.
"The burning question is when to sell oil companies and move back to banks.
"We resist the temptation. The time is nearer when inflation rolls over, towards the end of this year and certainly into 2009."
A record number (net 29pc) are now underweight on European equities; many have switched into cash as they wait for the European Central Bank to inflict punishment - ever more likely after eurozone inflation reached an all-time high of 3.7pc in May.
After a decade of investment in China, fund managers are now pulling money out of the country rapidly
The ECB's chief economist, Jurgen Stark, said yesterday that the price spike was a "cause for alarm".
Mr Bowers said Europe is now facing a triple whammy as the downturn in global export markets combines with a strong euro and a monetary squeeze.
"Eurozone retail sales have been worse than in the US on a year-on-year basis and eurozone GDP growth has also been worse," he said. "If you look at Spain and Italy, and even France, they are very weak.
"The Fed has eased dramatically, but the ECB hasn't eased at all. It intends to tighten regardless of the consequences on growth. This is what is eating away at confidence in Europe," he said.
Merrill Lynch said fund managers were belatedly adapting to a global inflation shock that poses a serious danger to asset prices, and risks setting off "civil protest" in Argentina, Indonesia, South Africa and the Gulf states.
As the new story unfolds, America is coming back into favour, emerging as a sort of safe haven in a fast-changing world where trusted institutions command a premium. Investors are quietly rotating back into Wall Street - despite a chorus of pessimists. A net 23pc are overweight US equities, the highest since August 2001.
The long awaited "decoupling" has begun.
The United States looks like the winner after all.
Have your say
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/19/ccfunds119.xml
China and India lose their appeal for investors on inflation fears
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 11:17pm BST 20/06/2008
The world's fund managers are pulling their money out of China and India at a record pace on mounting fears of inflation and are now more pessimistic about global equities than at any time in the past decade.
Are fund managers waving goodbye to investment in China?
The latest survey of investors by Merrill Lynch shows that Europe has become the most unpopular region, while Britain is still trapped in the doldrums.
But the big surprise is the sudden change in view on the emerging powers of Asia, as overheating and spiralling oil costs spoil the boom.
"World growth is slowing and yet central banks might still have to tighten monetary policy, that is what is scaring people," said David Bowers, the organiser of the survey. The vast majority of fund managers think earnings forecasts have lost touch with reality.
The exodus from China reached fever pitch this month as investors slashed their net "weighting" position to -58, down from -14 in May. The Shanghai bourse had already fallen by almost half since October.
The fund managers have been slow to sense the danger.
India fell to -63 as investors took fright at the country's budget and trade deficits. There is concern over a relapse towards Nehru-era policies after Delhi halted trading in a range of commodity futures and restricted rice exports.
The survey of 204 fund managers worldwide suggests that the love affair with emerging markets is going cold.
The net weighting was -63 for Chile, -47 for Taiwan, -37 for Korea and -32 for Poland.
Mr Bowers said investors no longer believe that the bloc has a grip on inflation. They are discriminating between the commodity producers and those that rely on imports of oil, minerals and food.
"Saudi Arabia is not the same as Turkey," he said.
Fund managers are still super-bullish on Russia, betting that the energy boom has life yet. A net 62pc are overweight oil and gas shares. The most hated trio are travel and leisure (-66), banks (-62) and property (-60).
Karen Olney, Merrill's European equity strategist, said oil is nearing its cycle peak. "Is the trade too crowded? Probably. As long as fundamentals remain strong, we retain our overweight stance," she said.
"The burning question is when to sell oil companies and move back to banks.
"We resist the temptation. The time is nearer when inflation rolls over, towards the end of this year and certainly into 2009."
A record number (net 29pc) are now underweight on European equities; many have switched into cash as they wait for the European Central Bank to inflict punishment - ever more likely after eurozone inflation reached an all-time high of 3.7pc in May.
After a decade of investment in China, fund managers are now pulling money out of the country rapidly
The ECB's chief economist, Jurgen Stark, said yesterday that the price spike was a "cause for alarm".
Mr Bowers said Europe is now facing a triple whammy as the downturn in global export markets combines with a strong euro and a monetary squeeze.
"Eurozone retail sales have been worse than in the US on a year-on-year basis and eurozone GDP growth has also been worse," he said. "If you look at Spain and Italy, and even France, they are very weak.
"The Fed has eased dramatically, but the ECB hasn't eased at all. It intends to tighten regardless of the consequences on growth. This is what is eating away at confidence in Europe," he said.
Merrill Lynch said fund managers were belatedly adapting to a global inflation shock that poses a serious danger to asset prices, and risks setting off "civil protest" in Argentina, Indonesia, South Africa and the Gulf states.
As the new story unfolds, America is coming back into favour, emerging as a sort of safe haven in a fast-changing world where trusted institutions command a premium. Investors are quietly rotating back into Wall Street - despite a chorus of pessimists. A net 23pc are overweight US equities, the highest since August 2001.
The long awaited "decoupling" has begun.
The United States looks like the winner after all.
Have your say
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/19/ccfunds119.xml
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