Investors overweight India; cut Korea, Taiwan - BofA poll

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Investors have gone significantly overweight Indian equities for the first time in over a year as a shaky global outlook lures cash to domestic demand plays, a BofA Merrill Lynch survey showed on Tuesday.Overall, the monthly poll showed emerging markets were investors' most favoured bet in July, with a net 34 percent overweight, up 3 percent from last month, though equity overweights in general fell sharply.Michael Penn, global equity strategist at BofA Merrill Lynch told Reuters investors had been scaling back their negative outlook on India in recent months and the bank's monthly fund managers' poll shows a net 5 percent are now overweight India.That is a giant swing from the February survey when a net 59 percent of global investors were underweight India.It also contrasts with the view on South Korea where investors went underweight in July, while trimming weighting in other export-focused markets Russia, Taiwan and Brazil. The survey showed 5 percent of investors are underweight Korea now compared with a 24 percent overweight three months back."There is evidence global emerging market investors are rotating away from markets exposed to the global cycle and towards those which are domestic demand-focused," Penn said.He said a net 80 percent of fund managers surveyed had identified domestic demand as the most important driver of emerging equity prices -- the highest reading in the poll's history."The increase in overweight in India and decrease on Brazil and Korea paints a picture of optimism about emerging consumer demand and of increasing pessimism on developed markets," Penn added.India is also benefiting from a stronger macro backdrop this year, and the International Monetary Fund has upped 2010 growth forecasts to 9.4 percent.At the same time, economic data especially in the United States has been shaky reflecting a slowdown in the pace of recovery and triggering fears of a double-dip recession. Chinese data has also been mixed.Penn noted that Taiwan, a cyclical market especially sensitive to the global cycle, has seen net underweight positions increase to 75 percent -- the biggest on record.Positioning on commodity-exporting Brazil also fell, with a net 15 percent overweight compared to 33 percent in January, Penn said, though on Russia, cheap stock valuations kept a net 55 percent of investors still overweight.Investors' market of choice was Turkey with a net 60 percent overweight, lured by the strength of its domestic demand.Interestingly, investors moved to a 20 percent overweight on Mexican stocks from a neutral position in June, motivated possibly by the apparent improvement in the U.S. economy prior to the recent run of poor data."The view going forward is less certain. It is unlikely people will increase the overweight unless there is meaningful upside to U.S. data," Penn said.(Editing by Ruth Pitchford)
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