BofA: Global investors turn away from EM equities as China growth optimism slumps

investmentweek.co.uk:

China's real estate has claimed the top spot for the most likely source of a systemic credit event.

Bank of America's monthly Global Fund Manager survey found that, based on cash positions, equity allocation and economic growth expectations, investors are still bearish, although they are no longer acting as «extreme bears».

September saw a record shift into US equities and out of EM equities. Allocations to US equities rose from a net 22% underweight in August to a net 7% overweight, while EM equity allocations fell to a 9% net overweight from 34% last month.

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The EM equities slump came as Chinese growth expectations plummeted from 78% expecting a stronger economy in February 2023 to 0% in September. Optimism for China's growth prospects in this month's survey is lower than a year ago, just before the country's reopening from the Covid pandemic lockdowns.

As investors lose confidence in China's economy and its property market in particular, the country's real estate has claimed the top spot for the most likely source of a systemic credit event, overtaking US/CRE commercial real estate.

Policy expectations from Beijing over the next six months are low, with a consensus among investors that stimulus will be limited to fine-tuning the property market (55%). Only 15% expected no stimulus at all, while 12% expected fiscal «bazooka» stimulus, targeted at the entire economy.

Beyond China, global growth expectations remain pessimistic, with over half (53%) of investors surveyed expecting a weaker economy over the next 12 months, up eight percentage points from last month. BofA noted the ongoing disconnect between growth expectations and the S&P