But mood remains cautious, with banks still a worry for survey respondents
Institutional investors are warming up to equities globally – though selectively – according to this month’s fund manager survey by Bank of America Merrill Lynch (BofAML).
Only a net 3 percent of 214 institutional investors believe the world economy will weaken in the coming 12 months, down from a net 27 percent in December – the biggest one-month improvement in the growth outlook since May 2009.
Investor sentiment shows a significant jump in both growth expectations and risk appetite from last month ‘albeit from quite bearish levels,’ observes Michael Hartnett, chief global equity strategist for BofAML, in a prepared statement.
‘Investors are tip-toeing rather than hurtling toward higher-risk exposure. The US market and high quality cyclical sectors, such as energy and tech, have been the main beneficiaries.’
Points of improvement
Other data points also indicate an improving mood among investors. Cash fell to 4.4 percent, for example, as investors shifted into technology, energy and industrial equities.
In addition, more than eight in 10 investors say they expect governments in Europe in particular to provide liquidity through ‘quantitative easing’ of money supplies, damping concerns of a credit squeeze-inspired recession.
Only one in 10 investors expects a hard landing in China as that economy cools.
Caution remains
But investors remain cautious: hedge funds reduced their leverage this month to the lowest level since August 2010.
Investors continue to avoid European bank stocks where they are 50 percent underweight, while US fund managers are still underweight in banks, but the proportion underweight in the sector has fallen to a net 16 percent from 32 percent last month.
The proportion of respondents viewing geopolitical risk as ‘above normal’ has jumped to 69 percent from 48 percent last month. This has, in the past, been correlated with a spike in the oil price.
Regional focus
Investors also hold a more selective geographic focus. A net 56 percent of global fund managers believe the outlook for corporate profits is more favorable in the US than any other region.
While the most extreme negative views toward Europe have eased slightly, investors remain ‘deeply skeptical’ overall, with a net 70 percent saying the profit outlook for the eurozone is the least favorable of all regions.
The survey canvassed the views of 286 fund managers with a combined $818 bn in assets under management between January and January 12.
