Global investor survey shows rising optimism and increase in allocations to stocks, finds BofAML
Optimism for the global economy has started to outweigh pessimism amid signs of economic strengthening in China, heralding a ‘great rotation’ out of bonds and into stocks, according to November’s Bank of America Merrill Lynch (BofAML) fund manager survey.
A net 34 percent of respondents believe the world economy will strengthen in the next 12 months, an increase of 14 percentage points on the October survey and the highest level since February 2011, according to the survey of 248 panelists worldwide with combined total assets of $695 bn.
While the US fiscal cliff, the outlook for the Chinese economy and the simmering European sovereign debt crisis have been the weak points of the global economic outlook in recent months, the survey suggests Chinese growth is becoming a positive factor.
The belief among investors in emerging markets, Asia-Pacific and Japan that China’s economy will strengthen in the coming year surged to a three-year high in November, to a net 51 percent from a net 5 percent in October, according to the survey. The biggest tail risk is the US fiscal cliff, cited by a net 54 percent of the panel, an increase from a net 42 percent last month.
‘Momentum has gathered behind the idea that we are on the cusp of a great rotation out of bonds and into equities,’ says Michael Hartnett, chief investment strategist at BofAML, in a statement. ‘The only missing ingredient is a resolution to the US fiscal cliff.’
BofAML says asset allocators have cut back their bond positions while strengthening their equity holdings for a fifth straight month. The percentage overweight in equities has risen to 35 percent this month from 25 percent last month.
The situation has reversed in bonds, with a net 35 percent currently underweight, up from 26 percent in October. Expectations for higher interest rates and inflationary pressures have increased. The survey shows allocations to commodities fell in the past month, while allocations to alternative assets rose slightly and real estate allocations declined.
Increasing optimism and a corresponding willingness to take greater risks in investments has helped boost sentiment for emerging markets, the survey also shows. A net 37 percent of asset allocators are overweight emerging markets assets in November, from a net 32 percent in October. The percentage of allocators who say they want to be overweight emerging markets for the coming year has risen to 30 percent from 22 percent.
