Investors
looking to escape the recent tumult in the technology sector are snatching up
stocks in another beaten-up corner: emerging markets.
The
latest monthly survey from Bank of America Merrill Lynch shows investors’
allocation to emerging-market equities jumped to 13% in November from 5% in
October.
At
the same time, their allocation to the global tech sector slid to the lowest
level since February 2009, with 18% of investors saying they were overweight in
the sector, compared with 25% last month, BAML’s survey found.
That
marks a change in sentiment from earlier in the year when investors shunned
emerging-market assets as the dollar rallied amid global trade tensions. When
the dollar climbs, everything that gets priced in other currencies becomes
cheaper, including foreign stocks such as those in emerging markets.
The
BAML survey suggests investors took advantage of the recent stock-market
turbulence to look for bargains: cash allocations among fund managers fell to
4.7% in November from 5.1% in October. Fund managers typically increase cash
positions during times of volatility if they are concerned about risk.
“We’re
in the midst of a major reset of investor sentiment and positioning,” said
Michael Hartnett, Bank of America Merrill Lynch’s chief investment strategist.
“But the pain threshold hasn’t been breached yet,” he said, adding the current
stock-market volatility hasn’t yet significantly affected the credit and
housing markets.
Since
Oct. 1, the MSCI Emerging
Markets Index has fallen 8% compared with the technology-heavy Nasdaq
Composite’s loss of 11%. The MSCI EAFE Index, which measures developed
countries outside the U.S. and Canada, has also lost 8% in the same period.
As
investors rotate out of highflying technology names, Brian Sterz, portfolio
manager at Miracle Mile Advisors in Los Angeles, said his firm has recently
been moving more into emerging markets and developed international stocks.
Within
emerging markets, Mr. Sterz said he likes Brazil, adding its economy took the
brunt of the pain earlier this year and the country is in a recovery phase. His
firm has also recently invested in several emerging-market exchange-traded
funds.
“We
want to buy things when they’re coming out of the doldrums and their valuations
are cheap,” he said.
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