Investors Cool on Brazil, Positive Mexico

Global EM equity fund managers surveyed by Merrill Lynch are net overweight Brazil and – for the first time since it started doing the survey in 2006 – also slightly overweight Mexico. But the buyside is starting to cool on Brazil versus other BRICs, with a small majority saying it was the least preferred credit of the four. Russia is most popular BRIC, and EMEA overall is seen as the most attractive EM region. Investors generally are negative on LatAm and Asia equity, Merrill data shows. Some 72% of EM fund managers surveyed say that EM corporate profits growth will deteriorate slightly in the next 12 months. US assets are generally back in favor for institutional investors, supported by a widely held belief that the USD is undervalued. The Merrill survey also highlights how the credit crisis may be starting to change for the worse. “Dramatic changes in sector rotation and currency markets suggest that the credit crunch may be morphing from a financial crisis into an economic one as fears grow about the outlook for the global economy,” says Merrill. “Almost one in four believe the global economy is already in recession, and almost half the respondents expect the world to experience recession in the coming 12 months. Evidence that the economic slowdown is spreading to economies like Japan and the eurozone has dashed any remaining hopes of economic decoupling,” it adds.