Global investors give mixed signals over equities

Aug 14, 2012
<p>Growth expectations up but fund managers remain cautious about cyclical stocks, survey finds</p>

Investors showed a marked improvement in their growth expectations this month but still remain cautious about equities, according to the latest fund manager survey from Bank of America Merrill Lynch (BofAML).

A net 15 percent of respondents believe the global economy will strengthen over the next year, the biggest jump in sentiment since May 2009. Last month, a net 13 percent felt the global economy would weaken during the next 12 months.

The jump in sentiment comes as expectations rise for further stimulus from the European Central Bank (ECB). Just 9 percent of the investors surveyed think there will be no more quantitative easing by the ECB.

Fund managers also expect an improvement in China’s outlook: a net 14 percent think the country’s economy will strengthen over the next year, the highest reading since November 2010.

The change in sentiment, however, has not convinced BofAML strategists that broader feelings toward equities have changed for the better.

‘We believe the policy and growth hopes are, nonetheless, fragile, and actual investor positioning does not suggest a major inflection point in the investment cycle,’ comments Gary Baker, head of European equities strategy at BofAML, in a video on the bank’s website.

‘For example, cash levels remain high at 4.7 percent, a small decline from 4.9 percent in July, bond allocations remain at the upper end of their historical range and investors continue to shun the most cyclical areas of the equity market: the banks and the materials stocks.’

Looking at regional sentiment, investors pulled back underweight positions in the eurozone in anticipation of ECB intervention: a net 13 percent are underweight, compared with a net 26 percent last month.

Meanwhile, Japan took over as the least favored region: a net 25 percent of respondents say they are underweight Japanese equities. BofAML says it’s ‘no coincidence’ roughly two thirds of investors think the yen is overvalued.

US equities remain popular with a net 13 percent of respondents saying they are overweight the region, a small drop from 14 percent overweight in July.

The survey, which took place on August 3-9, canvassed the opinions of 173 globally focused fund managers with a total of $491 bn in assets under management.

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