Fund managers from across the world are shunning the West in favour of China and emerging markets, yet still seem deeply concerned that rally over the last four months may prove to be a false dawn.
The July survey of investors by Merrill Lynch found that a net 63pc believe the world will recover over the next year, but they lack conviction and are not committing hard money to the rebound. “Asset allocators remain very cautious on global equities,” said the bank.
It noted a “very sharp increase” in cash as funds opt for caution, as well as a retreat from growth stocks into the safe havens of pharmaceuticals, health care, and utilities. Hedge funds have cut their net “long positions”, with many switching to the “short” side as the rally falters.Despite the skittish mood, investors still seem drawn like “moths to a flame” towards Asia and emerging markets, convinced that the catch-up economies will vastly outperform the Old World over the next twelve months. A net 54pc are overweight emerging markets, the second highest ever, led by Indonesia, China, Russia, and Brazil. They seem to be disregarding warnings that China may soon have to clamp down on rampant credit growth.
“Sentiment on emerging markets is so loaded that we could see some disappointment,” said Gary Baker, Merrill’s head of European equity strategy....MORE
And on the recent BNP call for a Shanghai crash between July 17 and 27, here's The Pragmatic Capitalist:
Interesting reading here from BNP on the potential of another Chinese stock market crash. Their approach is interesting as they come to their conclusions using components of the same theories that make up my own work. I, however, do not believe the Chinese market is in for a crash, but rather believe the “long decay” scenario is far more likely. It would be highly unusual for two bubbles to form in the same market in such a short period of time - especially when the fundamentals and psychology of the market’s participants don’t justify it. In fact, it could be called an anomaly since it has never happened before....MORE
Here's Felix Salmon:
Josh and Tyler have found a piece of ever-so-scientific research which calculates that the Shanghai stock market will crash somewhere between July 17 and July 27. Which is convenient for me, since I’ll be there personally from July 19 through 25; I should have a front-row seat!
If I had to pick a single day for the crash, of course, it would have to be July 22. When the predictions of a Log Periodic Power Law are ratified by a solar eclipse with the longest totality of the century, how could stocks possibly behave otherwise?
Here's NASA's eclipse website:
On Wednesday, 2009 July 22, a total eclipse of the Sun is visible from within a narrow corridor that traverses half of Earth. The path of the Moon's umbral shadow begins in India and crosses through Nepal, Bangladesh, Bhutan, Myanmar and China. After leaving mainland Asia, the path crosses Japan's Ryukyu Islands and curves southeast through the Pacific Ocean where the maximum duration of totality reaches 6 min 39 s. A partial eclipse is seen within the much broader path of the Moon's penumbral shadow, which includes most of eastern Asia, Indonesia, and the Pacific Ocean.
Finally, here's the three month chart for the Shanghai Composite Index:
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