S. Korea topples China as investors' favorite: Poll

S. Korea topples China as investors' favorite: Poll

Reuters Hong Kong

South Korea will topple China as fund managers' favorite Asian market by early next year, with Australia and India creeping onto investors' radar screens.

South Korea was the top pick by 33.3 percent of fund managers polled from both a three-month and one-year perspective in the latest quarterly funds survey by Reuters and Hong Kong-based fund management magazine, Benchmark.

China, the fund managers' long-held favorite, was relegated to second place with 22.2 percent and 11.1 percent of respondents choosing it over three and 12 months respectively.

But China was also rejected by 11.1 percent as the least-loved investment destination over three months -- the first time this year the economy was featured on the list of least-loved markets.

Some fund managers have cut their weightings on overvalued Chinese stocks after a huge rally in the early part of the year.

The poll of nine international fund management houses forecast South Korea, China and Hong Kong as likely to emerge as the top three Asian markets in the next 12 months.

Taiwan fell out of favor with 33.3 percent and 22.2 percent of respondents rejecting it over three and twelve months.

Elsewhere in the region, Australia and India gained investor confidence after being shunned in previous polls.

Australia was chosen by 11.1 percent of respondents who see the market as a safe haven for investments against rising global risks over the next one year.

India was favored by 5.6 percent of respondents after the lifting of economic sanctions by the U.S. imposed since 1998 in return for New Delhi's support to Washington in its war against Afghanistan.

Fund managers cited increased risks after the Sept. 11 attacks as the biggest threat to investment performance over the next three- and 12-month horizons.

"The major risk now is how U.S. retaliation efforts against the terrorist attacks will evolve and the resulting impact on economic growth," JF Asset Management said in the survey.

Fears over a protracted U.S. economic downturn prevailed with 19.5 percent of all respondents naming it the biggest risk in the coming year.

Events related to the Sept. 11 attacks spurred risk aversion among money managers, with 44.4 percent going overweight on defensive and healthcare stocks over the next three months.

The abrupt global economic downturn after the attacks reinforced investors' loss of faith in technology, with 22.2 percent of fund managers going underweight on the sector over the next three- and 12 months.

Bonds and cash were chosen by 22.2 percent and 11.1 percent of portfolio managers as the assets to hold over the next three months given volatile global stockmarkets.

But equities remained as most fund managers' best bet over the coming year with 88.9 percent expecting them to outperform.

Europe was the most-preferred destination for funds outside Asia, with 33.3 percent of money managers choosing to invest in the continent over the next 12 months.

The U.S. stock market, the world's largest, found favor with 27.8 percent of asset managers with a one-year horizon.

By contrast, Argentina was the least loved of all non-Asian markets, with 22.2 percent of fund managers rejecting it over a three-month and one-year horizon.

Nagging doubts over Argentina's ability to restructure its massive debts have cast a shadow over emerging market assets.