Emerging markets drawing in investors

FUND managers are piling into global emerging market equities ahead of what they are betting will be another wave of quantitative easing by central banks.

The level of equity that risk investors are taking in their portfolios rose more sharply this month than in any month since April 2009, according to a survey from Bank of America Merrill Lynch.

The report, published yesterday, said: "The vast majority of this movement into equities was into global emerging market (GEM) equities. A net 49 per cent of asset allocators are overweight in GEM, a monthly rise of 17 percentage points."

By contrast, appetite for US, eurozone and Japanese equities was stable, while fund managers were less bearish about the UK.

Gary Baker, BoA Merrill Lynch's European equities head of strategy, said: "European stocks, especially in cyclical sectors, are riding on the coat tails of quantitative easing expectations with as yet no sign of a pick-up in underlying macro fundamentals."

He said hedge funds had also continued to add to their equities exposure. Hedge funds use borrowings to amplify their asset bets, and Baker said their gearing was currently about 1.4 times, the highest since March 2008. "This is the third month running we have seen hedge funds increasing gearing and exposure to equities," Baker said.