Emerging-Market Investors Rate China as Best Bet, Merrill Says

(Bloomberg) -- China is the most-favored bet among global emerging-market stock investors following a “major U- turn” on growth expectations for the world’s third-largest economy, according to a Merrill Lynch & Co. survey. About 80 percent of the investors that were polled said they were “overweight” Chinese equities, the highest proportion since Merrill began the monthly survey more than five years ago. That suggests they held more of the nation’s securities than their relevant benchmarks indicated. Six out of every 10 respondents surveyed this month forecast China’s economic growth would strengthen, up from one in 10 in November.

“Weaker Chinese growth in coming months would now be a surprise,” Bank of America-Merrill Lynch strategists Michael Hartnett, Michael Penn and Jacky Tang wrote yesterday in a research note published in New York.

The Shanghai Composite Index, which tracks the bigger of China’s two stock exchanges, has surged 44 percent so far this year and the Hang Seng China Enterprises Index, which tracks so- called H shares of Chinese companies listed in Hong Kong, is up 27 percent. The MSCI Emerging Markets Index rose 33 percent.

The emerging-market investors surveyed by Merrill also said they shifted funds to Turkey, Indonesia, Russia, South Africa and Taiwan, and cut their holdings in Israel, Chile, Malaysia and India. Merrill did not disclose how many of these investors there were among the 220 fund managers with assets of about $617 billion that took part in a global survey conducted May 8-14. A net 46 percent of the managers in the global survey said they were “overweight” emerging-market equities, up from 4 percent two months ago and the highest proportion since mid-2007, according to Merrill.