Slower Chinese growth seen as top ‘tail risk’ by investors, according to BofAML survey
Global fund managers are shifting investments in expectations of slower growth in China and a collapse in commodities prices while eyeing Europe with increasing signs of optimism, according to the May survey of fund managers from Bank of America Merrill Lynch (BofAML).
Twenty-five percent of fund managers surveyed see a collapse in commodities prices and slower growth in China as their top ‘tail risk’ in the May survey, up from 18 percent in April, BofAML says in a press release. A net 8 percent of investors surveyed in Asia and emerging markets expect China’s economy to weaken over the next 12 months; in April, a net 9 percent predicted the country’s economy would strengthen.
‘May’s fund manager survey demonstrates a clear exit from China and assets connected to it – in the shape of commodities and emerging market equities,’ says Michael Hartnett, chief investment strategist at BofAML Global Research. ‘But it’s worth noting that investors are keeping faith in global growth.’
A net 29 percent of respondents worldwide say they are underweight commodities compared with a net 11 percent in the March survey, according to BofAML. The share of respondents who are underweight stocks drops to 38 percent in May from 50 percent in April.
The number of global fund managers who see the EU states and banks as their top tail risk drops to 29 percent in May from 42 percent in April, indicating decreased pessimism. At the same time, a net 38 percent of those surveyed worldwide see European stocks as undervalued, an increase from 23 percent in April.
A net 24 percent of European fund manager say Europe’s economy will strengthen over the coming 12 months, up from a net 19 percent in April. The proportion of investors who predict European corporate earnings will rise over the next 12 months, meanwhile, increases to 17 percent in May from 14 percent in April.
‘We see signs Europe is the region investors are watching. They are increasingly aware of cheap valuations in European stocks, and concerns over sovereign risk in the region are dissipating,’ says John Bilton, European investment strategist at BofAML Global Research.
Amid expectations of rising corporate profits, an increasing share of investors say companies should pay out cash. A net 27 percent of investors surveyed worldwide say payouts, including share buybacks and dividends, are too low, an increase from 21 percent in April.
In total, 231 fund managers with $661 bn in assets under management took part in the global survey from May 3 to May 9.
