Japan, India favoured among stock markets; China hit panic threshold: BofA survey

BofA Securities in its latest monthly fund manager survey (FMS) said Japan stayed the preferred stock market among fund managers, with India a very close second, while Australia, China and Thailand remained the unloved. A total of 41 per cent fund managers BofA Securities surveyed were 'Overweight Japan, while 39 per cent had 'Overweight' calls on India. 

A total of 32 per cent of funds that BofA surveyed finds consumption as their favourite investment theme in India against a mere 3 per cent in July. Against this, funds finding infrastructure as their favourite bets have fallen to 15 per cent in the August survey from 43 per cent a month ago. Funds having IT as favourite sectoral bet fell to 12 per cent from 14 per cent a month ago. Funds betting on smallcap and midcap stocks jumped to 10 per cent from 5 per cent, while PSUs remained a favourite theme for 5 per cent of fund makers, unchanged month-on-month.

"Within China, AI/semis continue to be the preferred method to gain exposure alongside SOEs, while in India, consumption toppled infrastructure as the favorite theme following a people-friendly budget," it said.

BofA said Japan was an outlier, with the FMS advocating more optimistic return expectations than before, despite taking a less spirited view of the economy. The headwind around the unwinding of carry trades in recent weeks has made investors laser focused on FX moves for clues about trends in equity markets, it noted.

"80% of the panelists expect Japan equities to rise in the next 12 months, although only 46% expect it to scale a new high. Japan retains its spot as the favorite market in the region, as cited by net 41% of the participants, with a (curtailed) bias towards banks and semiconductors sectors," it said.

BofA said its contrarian sentiment indicator for China equities hit the panic threshold this month. "The FMS echoes the apathy, with net 10 per cent expecting the economy to weaken over the next 12 months - the lowest breadth since the start of the survey in 2022 - as the propensity to save among China households is all but cemented," it said.

BofA said the structural bearishness on the China equity markets stays intact. The survey does not see any interest in the near-term either, with a third of the participants engaged in a wait-and-watch approach and yet another pursuing opportunities elsewhere.

"A spurt of weak US labor market data sent a growth scare rippling through financial markets, pushing the Global FMS view of the world economy to a YTD low. The Asia Pacific ex-Japan economic outlook was relatively more stable, with net 22 per cent expecting the regional economy to strengthen in the next 12 months versus 24 per cent last month," BofA said.