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India beats China as most favoured emerging market: BofA-ML

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Global investors may have reduced their exposure to emerging market equities but India still continues to be the most favoured country, says a report.

According to global financial major Bank of America Merrill Lynch, global investors have reduced their exposure to emerging market equities amid weak earnings prospects, weak Chinese economic growth and a strong dollar.

India topped the global emerging market investors’ country preference chart followed by China and Poland in the second and third place, respectively.

Asia Pacific investors have increased their allocations to India and Taiwan in June.

Meanwhile, as per latest data from depositories, Foreign investors pulled out more than Rs 3,300 crore from Indian stock markets so far this month, mainly on account of better returns from Asian peers, concerns over a slow revival in corporate earnings and continued worries over taxation issues.

“Despite having lost 14 per cent (in USD terms) since January highs, India continues to be the most favoured country for GEM (Global Emerging Market) investors,” BofA-ML said in a research report.

Other countries in the list included, Turkey, Indonesia, Mexico, Korea, Thailand and South Africa.

The BSE’s benchmark 30-share sensitive index closed 0.74 per cent or 200.34 points higher at 27,316.17 points on June 19. So far this calender year (since January 1) the index has lost 191.37 points or 0.69 per cent.

According to BofA-ML, the views on the Chinese economy, to a large extent, define investor views on emerging market equities. Moreover, China growth prospects have come down sharply since April.

“With the Shanghai Stock Exchange Composite Index up about 150 per cent in the last year with no sign of an earnings revival, 70 per cent of global investors believe China equities are in a bubble,” the report said.

According to June’s BofA Merrill Lynch Fund Manager Survey, globally investors have moved out of equities into cash ahead of an expected US Fed rate hike.
Investors have also shown concern about a Greek default and a possible bubble in Chinese equities as they have scaled back risk.

“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten,” BofA Merrill Lynch Global Research chief investment strategist Michael Hartnett said.

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