Fund manager survey finds investors bullish on global growth
19 December 2012
News, Asia, Global
By Asia Asset Management
Confidence in a recovering global economy is extending into 2013 as investor fears surrounding the fiscal cliff eased, according to the BofA Merrill Lynch Fund Manager Survey for December.
A net 40% of investors believe the global economy will strengthen in the year ahead, a rise of six percentage points month-on-month and double the reading two months ago. The number of investors viewing the US fiscal cliff as the biggest tail risk has fallen to 47%, down from 54% in November. Despite this fall, however, the fiscal cliff remains the number one worry.
Emerging markets are the preferred region for the panel. Optimism about China’s economy has reached the highest level recorded by this survey. A net 67% of the regional survey respondents say China’s economy will strengthen in the coming year, up from a net 51% in October. A net 38% of asset allocators are overweight emerging market equities, double the level of September’s survey.
“The bulls are back in China, while policy makers elsewhere put bears onto the back foot. If the bulls are to claim a decisive victory, we need hard evidence that the economy is reaccelerating,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research said. “Growth expectations and positioning are converging to mid-range levels, but many still think earnings expectations are too high. When these concerns subside, it’s likely that cheap valuations of European stocks will attract global fund managers,” said John Bilton, European investment strategist.
The number of asset allocators overweight US equities has fallen since November. But allocations to the eurozone are outweighing US allocations for the first time since November 2010. The net percentage of asset allocators overweight eurozone equities has risen to seven, up from a net 1% in November. In terms of sector, investors have maintained a broadly “risk on” stance – allocations to cyclical sectors Consumer Discretionary and Industrials have increased, and the market is firmly overweight both. But the number one sector remains Pharmaceuticals.
The outlook for corporate performance has improved for the third successive month and more investors are calling for companies to raise capital expenditure. A net 11% of investors believe profits will improve in the coming 12 months – a 22-point swing from October when a net 11% were forecasting lower profits.
Pessimism about corporate margins has lessened for the third successive month. The proportion of investors predicting worsening margins has fallen to a net 27%, down from a net 33% a month ago and a net 44% in October. Similarly, December’s survey shows reduced scepticism over corporates’ ability to deliver double-digit profit growth. A net 37% believes global corporate earnings growth will be less than 10%, down from a net 52% in November.
A net 64% of the panel believes that companies around the world are under-investing, the highest reading in the history of the survey and an increase from a net 59% month-on-month. Investors are less worried about dividends and buybacks – the proportion saying that payouts are too low has fallen to net 28% from a net 34%.
Emerging market corporates have consolidated their position as the panel’s favorite. A net 38% of investors say that global emerging market equities have the best outlook for corporate profits in the coming year, up from a net 32% in November.
Japan sentiment rises
Global investors’ caution towards Japan has eased, while domestic optimism has strengthened. The proportion of global asset allocators underweight Japanese equities has fallen to a net 20%, down from a net 34% a month ago.
A net 17% of the global panel would like to underweight Japanese equities in the coming year, but that’s less than the net 30% taking that view in November. A net 90% of Japanese investors expect the economy to strengthen in the coming year, compared with a net 18% in November, while a net 81% is forecasting improved earnings in the coming 12 months.
Liquidity conditions improve
Investors say that liquidity conditions are at their best since May of this year. The proportion of respondents rating liquidity conditions as “positive” rose to a net 23%, up from a net 13% in November. This marks the third successive month of improving liquidity ratings and follows efforts to support market liquidity by central banks, including recent rounds of quantitative easing by the Fed.
An overall total of 255 panelists with US$664 billion of assets under management participated in the survey from December 7 to December 13. A total of 193 managers, managing $503 billion, participated in the global survey. A total of 135 managers, managing $305 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS.
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