More than half of investors are increasing their exposure to emerging markets and European equity long/short this quarter as the belief that the ‘worst is over’ gathers momentum.
ML Capital’s quarterly survey of 45 professional investors, including wealth managers, family offices and private banks, which collectively run more than $90 billion, found that appetite for credit strategies is mixed with equities the clear winner.
Some 52% are looking to increase their global emerging market exposure in the first quarter with just 2% set to reduce their allocation, reflecting the bullishness for the region.
However, drilling down into the numbers reveals that investors are increasingly moving away from taking a regional approach to emerging markets with just 24% specifically looking to up their Asian exposure and 6% adding to Latin America.
ML Capital chairman John Lowry says that although 98% of respondents remain positive on emerging markets overall, the shift in approach was noteworthy.
‘Curiously, the interest in regional strategies has dropped off as demand for dedicated Asian strategies now at only 24%, is its lowest level since the barometer was created,’ he says.
‘Within the dedicated Latin America sector there is a fall off of interest. Many investors quoted poor returns from the region’s biggest market Brazil as the main reason to divest.’
Demand for European long/short strategies remained strong at 48%, up from 47% in the fourth quarter, and although confident that the eurozone has stabilised, respondents did cite concerns about recession risk in core economies.
Perhaps more surprising was the continued pessimism around Japan, which has surged into bull market territory over the past six weeks. Interest in the country remains at historic lows with 89% of respondents saying they will either maintain or reduce exposure, a ninth consecutive quarter of net reductions.
Attitudes to credit reflected the split between viewing the asset class as a relative safe haven or believing it is overvalued with 30% set to increase exposure, 28% decrease and 41% maintaining current levels.
In terms of hedge fund strategies, global macro systematic and CTA funds are experiencing the biggest outflows on the back of a third down year in four with multi-strategy and merger arbitrage the preferred approach in the alternatives silo.