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2014, Apr 25

Investors Forecast 'Soft Landing' for China

Investors Forecast 'Soft Landing' for China

by CFO Innovation Asia Staff, 17 November 2011

Behind the increased exposure to emerging market equities is increased faith in the resilience of China’s economy. In a new question this month, the BofA Merrill Lynch Survey of Fund Managers asked global investors if they see China’s economy experiencing a hard or soft landing in 2012.

 

More than three-quarters of the panel (78 percent) expect a soft landing, with China delivering better than 7 percent growth during the year. The proportion of regional investors believing that China’s economy will weaken in the coming year has fallen to a net 25 percent from a net 47 percent in October.

 

Fears of higher inflation, which have cast a shadow over emerging markets in recent months, have fallen away since September. A net 59 percent of respondents from Asia Pacific (ex-Japan) to the regional survey expect inflation to fall in the coming year, compared with a net 14 percent predicting higher inflation in September.

 

Investors’ belief in emerging markets is reflected in increased allocations to commodities and commodity-related equities. Global asset allocators have moved from underweight commodities in October to neutral this month. The biggest positive swings in equity allocations were in energy and materials. A net 1 percent of allocators are underweight materials, down from a net 9 percent in October. The proportion of allocators overweight energy stocks stands at a net 20 percent, up from a net 11 percent a month ago.

 

Emerging markets and the U.S. are the regions that investors feel most positively about. A net 28 percent say they would like to overweight emerging market equities more than any other region, while a net 18 percent opt for the U.S. A net 29 percent would most want to underweight the eurozone.

 

For the first time since March 2009, investors predict that short-term rates will fall in the next 12 months. A net 5 percent of the panel say rates will be lower a year from now, compared with a net 9 percent predicting higher rates last month – a potential signal that as concerns about inflation in emerging markets erode, the question of deflation could be on investors’ minds.

 

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