economy and corporate earnings has eased, according to the BofA
Merrill Lynch Survey of Fund Managers for August.
The survey shows a net 5 percent of respondents predicting that the
global economy will improve in the next year. This represents a modest
turnaround from July when a net 12 percent of respondents predicted
the world economy would deteriorate.
While the percentage of respondents expecting below-trend growth and
inflation remained unchanged at 73 percent in August, the survey shows
recession fears easing. A net 78 percent of respondents think a double-
dip recession is unlikely. After a deflation shock last month,
investors have shifted their focus back towards inflation.
The survey shows an almost neutral view on the prospects for a rise in
global inflation in the next year. Just 1 percent of respondents
expect inflation to be lower in 12 months' time, compared to a net 12
percent in July. In addition, a net 14 percent of asset allocators
indicated that global monetary policy is too stimulative, compared to
just 5 percent in July. Nonetheless, 55 percent of respondents to the
global survey are ruling out any rate hike in the U.S. before the
third quarter of 2011.
A key indicator tracking investors' risk and liquidity conditions
returned to an almost neutral reading, indicating an improvement in
sentiment.
"The spotlight of investor pessimism has shifted away from China and
Europe to Japan and the U.S. Investors clearly remain cautious, so
better news on U.S. growth and fiscal policy would be a pleasant
surprise," said Michael Hartnett, chief Global Equities strategist at
BofA Merrill Lynch Global Research.
"Investor sentiment on Europe has staged a remarkable recovery in the
past few months, underpinned by greater optimism about Europe's banks.
Economic data now has to continue to support this shift," said Gary
Baker, head of European Equities strategy at BofA Merrill Lynch Global
Research.
Appetite for European equities returns
Asset allocators reduced their cash holdings. A net 7 percent were
overweight cash in August, compared to 13 percent in July and 19
percent in June. While there was an uptick in allocation to equities,
there was a drop in allocation to bonds. A net 23 percent were
underweight bonds in August, compared to a net 15 percent underweight
in July.
The survey also shows a sharp drop in investors' appetite for U.S. and
Japanese equities, but a recovery in demand for Eurozone equities.
A net 14 percent of asset allocators are underweight U.S. equities,
compared to 7 percent overweight in July. Global asset allocators have
also reduced their exposure to Japanese equities. A net 27 percent
were underweight Japanese equities in August, compared to a net 7
percent in June.
In contrast, a net 11 percent were overweight eurozone equities in
August, the most positive reading since October 2009. This compares to
a net 10 percent who were underweight a month earlier. There was also
good news for U.K. equities, on which investors are the most
optimistic they have been since May 2007.
Bearish sentiment on China recedes
Global Emerging Markets (GEM) increased in popularity as concerns
about a weakening of the Chinese economy waned. A net 38 percent of
global asset allocators are overweight GEM equities, up from 34
percent in July and 31 percent in June.
Bearish sentiment towards the Chinese economy eased markedly. A net 19
percent of respondents expect the Chinese economy to weaken over the
next year, compared to 39 percent just a month ago. This improved
sentiment was supported by a shift towards commodities. A net 9
percent of respondents were overweight commodities in August, compared
to a net 1 percent underweight in July.
Banks, consistently one of the most unloved sectors, finally saw a
sharp improvement from a net 28 percent underweight in July to a net
19 percent underweight this month. This ranked alongside industrials
as the biggest sector shift by investors. On the other hand, utilities
and pharmaceuticals suffered steep declines in support.
U.S. dollar looks cheap; Japanese yen overvalued
The survey reveals that asset allocators think the U.S. dollar looks
undervalued, while the Japanese yen is seen as overvalued. A net 23
percent of respondents regard the dollar as undervalued, compared to
just 3 percent in July. A net 62 percent see the yen as overvalued - a
survey record - versus 55 percent a month earlier.
Survey of Fund Managers
A total of 187 fund managers, managing a total of US$513 billion,
participated in the global survey from 6 August to 12 August. A total
of 157 managers, managing US$327 billion participated in the regional
surveys. The survey was conducted by BofA Merrill Lynch Global
Research with the help of market research company TNS. Through its
international network in more than 50 countries, TNS provides market
information services in over 80 countries to national and multi-
national organizations. It is ranked as the fourth-largest market
information group in the world.
The BofA Merrill Lynch Global Research franchise covers over 3,100
stocks globally and ranks in the top tier in many external surveys.
Most recently, the group was named 2010 Top Global Broker (second
consecutive year), Top Europe Broker, No. 2 U.S. Broker and No. 3 Asia
broker by Financial Times/StarMine. The team was also named Best
Brokerage by Forbes/Zacks for the second consecutive year. In
addition, the group was named No. 1 in the 2010 Institutional Investor
All-Emerging Europe Research team survey and No. 3 in the 2010
Institutional Investor All-Europe team survey for pan-European
coverage. In 2009, the team was named No. 2 in the Institutional
Investor 2009 All-Brazil Research team survey; and No. 3 in the 2009
Institutional Investor 2009 All-America Equity, All-Latin America and
All-America Fixed-Income Research team surveys.
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