China is the new Greece, say fund managers

Fund managers are focused on avoiding the contagion from falling Chinese markets, as they turn their back on Greece worries, finds a new survey.

While Greece dominated concerns in previous months, China recession is now the number one tail risk for managers, finds the Bank of American Merrill Lynch fund manager survey for August. More than half of fund managers are ranking China as the top concern.

Investors are “avoiding anything exposed to China or commodities,” says James Barty, head of European equity strategy.

Following the People’s Bank of China devaluation of the yuan last week, investors began to get more jitterish, says Valentijn van Nieuwenhuijzen, head of multi-asset at NN Investment Partners, formerly ING Investment Management.

“It did not take long before markets again started reflecting more risk-averse investor behaviour,” he says. “The change in the currency regime of Chinese policymakers fuelled fears of escalating ’currency wars’, erosion of Chinese policy makers’ credibility and rising market fragility through contagion into commodity markets, or sectors, or regions sensitive to commodity dynamics.”

Expectations for growth of the global economy also fell. In August, 53 per cent of investors say the global economy will strengthen in coming year, a reduction on the 61 per cent in July.

Fund managers are also cooling on global emerging markets, with it being the region most want to underweight. Instead, they are moving into European markets, making it the most-overweighted region.

“Investors are sending a clear message that they are positioned for lower growth in China and emerging markets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.