GRAPHIC-Emerging markets allocations highlight bad bet on Brazil

LONDON Fri Oct 25, 2013 1:19pm BST

LONDON (Reuters) - Global emerging markets equity fund managers continued to cut their allocations to Brazil during the third quarter, according to the latest data from Lipper, missing out on a resurgence in stocks there.

A sample of allocations changes at more than 1,500 actively-managed funds with close to $160 billion in assets has shown that managers cut their Brazil weightings to less than 11 percent of their portfolios in the three months to end-September. The move continues a trend which has seen the weighting fall from 12.6 percent a year ago.

Brazil was the only country whose stock market rose in the third quarter to suffer a drop in its average allocation.

You can see a full interactive graphic of allocations changes by funds in Lipper's Global Emerging Markets (GEM) Equity sector by clicking here: r.reuters.com/buw89t

Brazilian stocks .BVSP are still down over 12 months, but have staged a resurgence since July, thanks at least in part to the U.S. Federal Reserve's decision to delay the end of stimulus measures which have helped underpin emerging markets' valuations.

The fall in the average Brazil allocation to 10.95 percent compares with a weighting for the country in the MSCI EM index from earlier this month .MSCIEF of 11.7 percent. That indicates a likely underweight position by fund managers, although GEM funds are able to hold a more diverse range of stocks, making direct comparisons difficult.

Most of the "fragile five" - so named by analysts at Morgan Stanley for their relatively wide current account gaps - suffered similar fates in the third quarter. Indonesia, India and Turkey all suffered cuts in average fund weightings and are stuck at the bottom of the table alongside Brazil.

But it seems that South Africa has succeeded in convincing some investors that the label was unwarranted, seeing an increase in average allocations at the funds studied for the first time in 12 months.

Its weighting with the funds, however, is still someway shy of its weighting in the MSCI EM index.

(Graphic by Vincent Flasseur; Editing by Pravin Char)

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