Global investors are continuing with their investment strategy in emerging markets like India, despite weakening global macro-economic conditions, higher crude oil prices and credit concerns, a latest survey states.

According to global financial service provider Merrill Lynch’s survey of fund managers for November, investors have remained heavily overweight on the emerging market equities and continue to favour the global technology, energy, materials and industrial sectors.

The US effect

In the past month, the price of crude oil rose 18 per cent and credit spread. But majority of investors still favour equities and are comfortable with the idea that the global economy can withstand a downturn in the US and believe that bad macro economic news has been priced in, the survey said. On the other hand, bears can argue that complacency lingers as 12 per cent of respondents expect a global recession in the next 12 months, it added.

However, the survey points out that bulls and bears do agree that the business cycle is maturing with 70 per cent of the panel believing the global economy has entered a late-cycle phase.

“Investors are holding their nerve despite the gloomy outlook for growth and profit expectations,” Independent Consultant to Merrill Lynch David Bowers said. However, signs have emerged that portfolio managers are taking a more conservative view on how they would like to see companies use their cash flow, he added. The survey said that investors are divided over forecast earnings in 2008, with 48 per cent of respondents expecting corporate earnings to fall, up from 28 per cent in August.

“Faced with an uncertain earnings outlook and tighter credit conditions, respondents are becoming pickier about how they want companies to allocate their cash flow,” the survey said.

Beef up books

Almost 20 per cent of the panel now wants companies to start strengthening their balance sheets, compared to just eight per cent in June.

A total of 189 fund managers managing $683 billion worth of assets participated in Merrill Lynch’s global survey from November 2-8. A total of 171 managers with $460 billion AUMs took part in the regional surveys.

The survey was conducted with the help of market research company Taylor Nelson Sofres (TNS).