It has been a rollercoaster ride for the global equity markets in the last few weeks, as they have braved a number of headwinds – from geopolitical tensions, a possible recession scare in the United States (US) to impact of the yen carry trade.
So, is the worst over for the global markets? How will Japanese stock markets play out in the next few months? Is the US really headed into a recession? And, where does India stand in the preference list of global fund managers in this backdrop?
A total of 220 panelists with $590 billion worth of assets under management (AUM)) participated in a survey conducted by BofA Securities between August 2 and August 8 and shared their views on how they see global equities play out over the next few months.
Here are top 10 findings.
India stock market among most preferred: India remained the second most preferred investment destination with 39 per cent of fund managers being overweight on Indian equities. Japan topped this preference list with 41 per cent of the fund managers surveyed being overweight on the region.
“Tech-heavy Taiwan and Korea saw a drop in allocation, with the former displaced from a top-3 spot for the first time in nine months. Australia, China and Thailand remain unloved,” BofA Securities said.
BofA FMS survey August 2024
Betting big on consumption in India: In India, consumption (32 per cent preference) toppled infrastructure (15 per cent) as the favorite theme, BofA said, following a people-friendly budget.
Economic outlook: The Asia Pacific ex-Japan economic outlook, fund managers said, was relatively more stable, with 22 per cent of the fund managers surveyed expecting the regional economy to strengthen in the next 12 months versus 24 per cent in July.
Corporate profits: Corporate profit expectations in the Asian region took a beating, BofA’s findings suggest, with only 17 per cent of the respondents surveyed in August expecting a rise in profits in the next few months as compared to 57 per cent in July.
“Asia Pacific ex-Japan valuations, on the other hand, continue to be assessed as fair as they have throughout this year,” the BofA Securities note said.
 "Country preference")
Country preference
Currency moves: Global investors (56 per cent investors in August versus 30 per cent in July), the BofA survey said, are now more focused on currency moves, which, besides other factors they feel, will dictate the market direction going ahead in Japan. Wage negotiations/BoJ policy normalisation, corporate governance reforms and JPX initiatives are some of the other factors that they believe will impact Japanese equities.
Worst over for Japan? Equities in Japan are expected to rise in the next 12 months, with 80 per cent of the fund managers surveyed by BofA Securities believing so, though only 46 per cent expect the Nikkei 225 index to hit a new high.
“Japan retains its spot as the favorite market in the region, as cited by 41 per cent of the participants, with a (curtailed) bias towards banks and semiconductors sectors,” BofA said.
China ‘s economy weakening?: BofA’s contrarian sentiment indicator for China equities hit the panic threshold in August, BofA said.
“The FMS echoes the apathy, with net 10 per cent expecting the economy to weaken over the next 12 months – the lowest breadth since the start of the survey in 2022 – as the propensity to save among China households is all but cemented,” BofA said.
China stock market: Structural bearishness on the China equity markets stayed intact in August with 32 per cent of respondents remaining in a ‘wait-and-watch’ mode before increasing their exposure to the region. An equal number (32 per cent) of fund managers have already started scouting for other regions/stock markets to deploy funds versus 22 per cent in July.
Semiconductor cycle: After an extended period of dominance, BofA said, investor’s faith in the semiconductor cycle has been shaken, as the FMS cut its outlook to a 19-month low of around 30 per cent.
Sector preference: Investors, BofA said, continued to prefer technology in August, although there was a claw-back in allocation alongside a souring of sentiment towards other cyclical sectors such as energy and materials in favor of defensives like staples, healthcare and utilities on emerging US recession risks.
