Fund managers give upbeat view of global outlook despite worsening of sentiment on Europe, finds survey
Companies should throw surplus cash at capital expenditure or return it to shareholders, investors demanded today.
The call comes in the July Bank of America (BofA) Merrill Lynch fund manager survey, which carries weight because 265 panelists with $792 bn of assets under management took part.
When analysts asked fund managers what they most wanted companies with spare cash to do, the most favored answer was capex, with a net 41 percent selecting this option, compared with 43 percent last month.
The amount of respondents who want companies to return cash was almost unchanged from last month at 35 percent. Those who want businesses to improve balance sheets rose to 18 percent from 16 percent in June.
Investors who assessed the situation about capex, payout ratio and leverage gave a stark message: a net 42 percent regard companies as under-leveraged and a net 32 percent say payouts to shareholders are too low.
The hard times facing IR officers at Europe’s banks are underlined by the finding that European investors have steeply cut holdings in the banking sector. This point is particularly significant because it shows what fund managers did, rather than what they said.
A net 57 percent of the European respondents to the survey are underweight in the industry, compared with 33 percent in June. The new figure has pushed the sector to its lowest level since February 2009.
The bearish news led one analyst to ask whether European equities are now cheap. ‘Investors have acted decisively in response to recent developments in EU sovereign funding. The question is whether eurozone equities have been oversold,’ says Gary Baker, head of European equities strategy at BofA Merrill Lynch, in a press release.
The demand from investors comes as they give a strikingly upbeat assessment of the world’s economic outlook, despite a steep worsening of investor sentiment toward and within Europe.
A net 19 percent of global fund managers and asset allocators believe the world’s economy will get stronger over the next 12 months. That figure has grown for two successive months since May, when it hit a net 10 percent. A net 11 percent of investors expect companies worldwide to increase profits in the coming year, compared with a net 7 percent in June.
While European investors are bearish due to the sovereign debt crisis, investors increased positions in all regions outside the eurozone. Japan and emerging markets enjoyed the biggest improvement.
A net 22 percent were underweight in Japan during June, but that turned into 2 percent overweight in July. In emerging markets, a net 33 percent of asset allocators are overweight this month, an increase of 10 percentage points since June.
