Investors gloomy on emerging market equities

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The monthly poll of 190 global fund managers found investors at their most risk-averse since April 2001, with 40 percent now underweight global stocks, as the six-month old credit crisis stokes fears of a U.S. recession and a global slowdown.

Global emerging market investors showed the highest level of pessimism on profits since the GEM survey began in 2007.

But the survey found a big rise in investor preference for Russia.

"GEM investors maintain large overweight positions in Russia and Brazil. Russia is favoured over Brazil for the first time in our (global emerging markets) survey," Merrill said, adding that funds were underweight India and China, the two other legs of the so-called BRIC countries.

The survey found 73 percent to be net overweight Russian stocks versus 46 percent in November 2007 while 64 percent were net overweight Brazil, down from 73 percent in November.

Russia underperformed all of last year despite high oil prices as uncertainty over the political succession weighed. Now the Kremlin succession is clear as is the fact that President Vladimir Putin will retain political influence.

"What we have seen is the increase in overweight in Russia in the past two-three months and the main driving theme to us is that the government has got a large oil surplus," said Michael Penn, global emerging equity strategist at Merrill Lynch.

"Also there is the idea that domestic demand is strengthening and there's increased spending by Russian consumers," Penn said. "I would also think the more stable political environment has helped."

Other overweights were Turkey, Thailand and Indonesia, while country allocations to Chile, Korea, Poland, South Africa and Taiwan were underweight relative to benchmark indices.

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