International funds shun SE Asia

International funds shun SE Asia

LONDON (Reuter): Southeast Asian equity markets are under intense selling pressure from funds worldwide with selling interest greater than during the Mexican crisis in early 1995, according to a survey by Merrill Lynch.

It said fund managers were looking to cut exposure to Pacific Basin stocks amid concern about the short-term outlook for the region after sharp falls in the "Tiger" economies' exchange rates and a rise in domestic interest rates in the region.

Its global survey covered 259 institutions managing funds worth $5.55 trillion. It is split into five regional surveys carried out between August 29 and September 3.

Bijal Shah, global strategist at Merrill Lynch, said t selling by fund managers has gone to an extreme level and what you are going to see is markets balancing as people go in and pick up stock," he said.

In the Japanese survey, there was not a single bull on Asian equity markets and 78 percent of respondents were bears. In the British survey, the extent of selling interest towards the region was the highest since the survey began in 1990.

Within the Asia Pacific region, buyers are flocking to markets unaffected by the crisis, such as Australia and India, it said.

The crisis has also reduced appetites for emerging markets in general, with respondents in the United States less keen on raising Latin American exposure, the survey found.

Merrill last week raised its strategy to neutral from underweight on the region. Its favorites are Hong Kong and Singapore.

U.S. funds

According to Merrill Lynch, the U.S. fund managers are switching out of equities into Treasuries as an increasing number of managers anticipate a rise in the Fed funds rate over the coming year.

The survey of 41 U.S. institutions managing funds worth $1.88 trillion, conducted by Gallup between Aug. 28 and Sept. 3, showed buying interest towards Treasuries was strong, with buyers outnumbering sellers by 20 percent.

The figures was the highest since December 1994. At that time bond yields at the long end were around eight percent against around 6.5 percent currently.

Sellers of U.S. equities outnumbered buyers by 12 percent.

Merrill said the shift in sentiment could be occurring because an increasing number of managers (54 percent) expect the Fed funds rate to rise over the coming year, against 43 percent in August's survey.

"Managers have traditionally been good at finding value in bond markets. This is a great signal for Treasuries," Merrill global strategist Bijal Shah said.

The survey found that bulls outnumbered bears by 19 percent on a medium term outlook for the U.S. bond markets, with bulls outnumbering bears by only five percent on the outlook for equities.