In case investors were in any doubt about the extent of the eurozone slowdown, it has just been made abundantly clear.

Second-quarter growth data showed the eurozone growing by 0.2 per cent. That was weak, but it was Germany, the eurozone’s engine, which shocked with just 0.1 per cent.

Essentially the data undershot already downgraded expectations. That is a blow.

Small wonder perhaps that Bank of America Merrill Lynch’s monthly fund manager survey on Tuesday reported emerging markets as the sole surviving asset class where investors were happy to remain “overweight.”

Its not hard to see why emerging markets appear to be the last bastion of hope. Just compare stalling western growth with the slight softening seen in most of the emerging world, and consider the effect of overleveraged western consumers and governments on long-term growth. That makes clear the rationale behind resuming the long-term shift towards the emerging world, and Tuesday’s eurozone data only make the contrast starker.

Fresh money hasn’t flowed into emerging markets just yet; specialist funds last week saw hefty outflows.

This is backed up by the BofA Merrill Lynch survey, which shows fund managers now hold their highest cash balances since March 2009 at 5.2 per cent - just below the report’s 5.5 per cent peak in December 2008.

Given the latest survey was taken during the recent tumult, this isn’t surprising. Nerves are to be expected, especially since emerging stocks have suffered in tandem with their developed counterparts as lower global growth expectations have been factored in.

But when sentiment recovers, Tuesday’s eurozone data will have crystallised investors’ thinking. The recent falls will simply provide the more bullish with a better level at which to buy in.

James Mackintosh is away

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