Global investors have become significantly more confident in the outlook
for growth, according to the BofA Merrill Lynch Fund Manager Survey for
August. A net 72 percent of respondents now expect the world’s economy
to pick up over the next 12 months – the survey’s strongest reading on
this measure in nearly four years and a striking rise from July’s net 52
Investors remain concerned over a “hard landing” in China, though this
has calmed since last month. More than half of the panel still
identifies this threat as the biggest risk for markets and economies.
However, a net 32 percent of investors expect China economic growth to
be weaker, improvement from net 65 percent expecting the same last month.
At the same time, sentiment towards the eurozone has improved notably.
No fewer than 88 percent of European fund managers now anticipate the
region strengthening in the year ahead, twice the level recorded last
month. Respondents increasingly view stronger growth as the likeliest
solution to the eurozone debt crisis, rather than interventions by the
European Central Bank.
The macroeconomic tailwind is reflected in a further overweighting of
equities, to a net 56 percent. Equally, the higher inflation and
long-term interest rates expectations led to an increase in underweight
in bonds (to a net 57 percent). Cash holdings are reduced slightly from
July’s year-high level, but remain at an elevated 4.5 percent. This
appears to tie in with the widespread expectation among investors (seven
out of eight) that recovery will remain below-trend for the time being.
“While global growth expectations have risen very rapidly, the good news
is that cash levels remain high. Out-of-favor emerging markets offer
some enticing opportunities to deploy these balances,” said Michael
Hartnett, chief investment strategist at BofA Merrill Lynch Global
“The current earnings season shows global recovery reflected in European
companies’ performance. With the eurozone the most undervalued major
market by far, optimism on the region’s equities should be sustained,”
added John Bilton, European investment strategist.
With macroeconomic views of the eurozone increasingly positive,
investors are positioning for gains in the region’s equities. A net 20
percent of respondents would overweight the market on a 12-month view –
this marks the survey’s highest reading on this measure in over six
years and makes the region investors’ top choice on this horizon, ahead
of Japan. Already, a net 17 percent reports being overweight currently,
a 14 percentage point rise since last month.
Sentiment would improve further if a European banking union were
implemented, the survey makes clear. This remains the key factor for a
full revival of European risk appetite, according to panelists, though
they also look for structural reforms in peripheral economies and
evidence of strong corporate earnings.
GEM sentiment still sour
Investors’ weak conviction towards global emerging markets (GEM) is
evident from their reported net 19 percent underweight in GEM equities.
This further weakening compared to last month represents the lowest
level recorded in the survey in nearly two years, even though more than
three-quarters of specialist fund managers view GEM equities as
Nonetheless, some positive GEM stories stand out from the survey. In
particular, Korea (broadly referring to South Korea's Kospi Index) has
seen a notable turnaround in sentiment since last month. GEM specialists
now rank the market one of their top picks (alongside China and Russia),
from a net 21 percent underweight in July.
Call for more capex
Given the strength of the macroeconomic outlook, companies should be
committing more resources to capital expenditures that could secure and
even enhance their future growth, in investors’ view. A net 64 percent
of panelists believe that corporates are under-investing in their
businesses, up a further six percentage points from July’s strong
Investors’ call for more aggressive capex reflects doubts over the
strength of future corporate earnings. The survey reveals improved
profit expectations, with a net 43 percent of global fund managers
looking for better EPS in the next year - the measure’s highest level
since early 2011.
But only a minority (32 percent) judges that the global corporate
universe is likely to achieve double-digit EPS over the period.
Survey of Fund Managers
An overall total of 229 panelists with
US$671 billion of assets under management participated in the survey
from 2 August to 8 August. A total of 180 managers, managing US$516
billion, participated in the global survey. A total of 112 managers,
managing US$290 billion, participated in the regional surveys. The
survey was conducted by BofA Merrill Lynch Global Research with the help
of market research company TNS. Through its international network in
more than 50 countries, TNS provides market information services in over
80 countries to national and multi-national organizations. It is ranked
as the fourth-largest market information group in the world.
BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global
Research franchise covers over 3,500 stocks and nearly 1,100 credits
globally and ranks in the top tier in many external surveys. Most
recently, the group was named Top Global Research Firm of 2012 by
Institutional Investor magazine; No. 1 in the 2013 Institutional
Investor All-Asia survey for the third consecutive year; No. 1 in the
Institutional Investor 2013 Emerging Market & Fixed Income Survey; No. 2
in the 2013 Institutional Investor All-Japan survey for the second
consecutive year and No. 2 in the 2012 All-China and All-Latin America
surveys; No. 3 in the 2013 Institutional Investor All-Europe survey and
No. 3 in the 2012 Institutional Investor All-America survey. The group
was also named No. 2 in the 2012 Institutional Investor All-America
Fixed Income survey; and No. 3 in the 2013 All-Europe Fixed Income
Additionally, BofA Merrill Lynch Global Research was named the No. 1
Global Broker by Financial Times/StarMine, as well as ranked No. 1 in
the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in
Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street
2012 Analysts Surveys.
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