Managers lose faith in 'safe' asset class
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According to the latest Merrill Lynch Global Fund Manager Survey only a net 4 percent of the managers surveyed remained positive towards the asset class.
Sentiment has dropped dramatically since May when 31 percent of the respondents said emerging markets were likely to do well, despite troubles in credit markets and a sharp decline in investor confidence.
A net 23 percent of managers say emerging market risk is "above normal" as inflationary pressures and a drop in global growth seem set to dampen the effect of high commodity prices. The downturn in confidence reflects more general pessimism towards equities as a net 40 percent of the managers reported they were underweight in the asset class as a whole.
This is contrasted with the net 53 percent overweight in cash as managers see little sign of a global recovery in either equity or fixed income markets and are content to wait for stronger positive signals of economic revival.
Despite the pessimism, the first six months of 2008 have provided opportunities to outperform.
ETF Securities, a provider of exchange traded funds (ETFs), has seen its ETFs All Commodities index rise by 26.8 percent year-to-date, as the index outperformed the S&P 500, the DJ EuroStoxx 50 and the FTSE 100 indices.
Sharp drops in the FTSE 100 has meant the commodities index outperformed it by 37.3 percent with the S&P 500 faring even worse underperforming the index by 38.7 percent.
With developing economies such as Russia and Brazil filling their coffers through crude oil and natural gas exports, the loss of confidence in global emerging markets as a whole is suggestive that the commodities boom will not be enough to buffer these countries against a global economic downturn.
The problems are evident as despite record oil prices the MSCI Russia index has lost 9.6 percent since the start of the year while the MSCI Brazil index has lost 7.5 percent.
A total of 191 global fund managers with $610 billion (£304 billion) of assets participated in the Merrill global survey. It was conducted jointly with Taylor Nelson Sofres, a market research company, from July 3-11.
