Investors believed in the growth of emerging economies

The number of optimists counting on the global economic recovery among portfolio managers is growing rapidly. Due to fiscal problems in the US and peripheral European countries, investors are giving preference to emerging markets. At the same time, the Russian market ranks second in popularity after China, which is facilitated by low inflation, a strong ruble and high oil prices.

The latest survey of portfolio managers this year, conducted by Bank of America Merrill Lynch, showed improved expectations regarding the global economic recovery and growth in corporate profits. Among 255 companies with $664 billion in assets under management, the number of managers who are confident that the global economy will grow next year is 40% higher than those who doubt it. Market participants were more optimistic about the state of the economy in February 2011, when there were 58% more optimists than pessimists.

Portfolio managers cite budget problems in the US and peripheral European countries as the main obstacles to global economic recovery. In December, half of the executives surveyed said the U.S. “fiscal cliff” issues were a key risk with unpredictable consequences. At the same time, the problems of financing government spending in the eurozone frighten almost a quarter of managers. The threat of automatic cuts in US budget expenditures and the eurozone debt crisis remain the main problems of the global economy in the short term, analysts from the Fitch rating agency confirm investors' fears. As a result, the outlook for sovereign credit ratings for seven of the world's ten largest economies, including three AAA-rated countries (USA, UK and France), will remain negative next year. “The eurozone continues to be in recession, while a recovery in US economic growth is expected no earlier than the end of 2013,” agency analysts note.

In such conditions, shares of emerging market companies are the most popular among investors. In December, the number of managers who believe that the highest dividends over the coming year should be expected from companies in these markets was 38% higher than the number of those who see brighter prospects in other regions. In November there were 32% more optimists. These indicators confirm data from Emerging Portfolio Fund Research. Over the past 14 weeks, emerging market funds have recorded net inflows of $28.6 billion, of which $8.6 billion came in the first two weeks of December. In total, almost $45 billion has flowed into EM funds since the beginning of the year. The increase in performance is partly explained by growing confidence in the acceleration of the Chinese economy. According to the survey, the number of managers who are confident that China's economy will grow next year is two-thirds higher than the number of those who do not believe in growth. A month earlier there were only 51% more optimists. As a result, the number of investors who increased their investments in China outnumbered those who did not by 46%. The World Bank also believes in the Chinese economy (see material on page 8).

At the same time, the popularity of Russian stocks has increased. The number of managers who increased investments in Russia was 50% higher than the number of those who reduced them. A month earlier, there were only 20% more optimists than pessimists. However, the popularity of Russian stocks is far from the peak reached in February 2011. Then the number of managers who increased investments in Russia was 88% higher than the number of those who did not. The restoration of foreign investor interest is due to the slowdown in inflation and the stabilization of the ruble exchange rate. “Assuming oil prices remain at the current level, these circumstances make investing in ruble assets very attractive,” notes Vladimir Bragin, director for analysis of financial markets and macroeconomics at Alfa Capital.

Vitaly Gaidaev

Russian and Chinese - drivers for a year