But Below-Trend Growth & Over-Valuation Cause Concern
NEW YORK & LONDON--(BUSINESS WIRE)--
Global investors have regained appetite for risk against the backdrop of
strong liquidity and a fairly positive economic outlook, according to
the BofA Merrill Lynch Fund Manager Survey for June.
A net 66 percent of respondents expect the global economy to strengthen
over the next year. This bullish reading is unchanged from last month’s
survey. However, concern at the pace of expansion is rising. A net 78
percent now anticipate below-trend growth over the next 12 months. In
response, more investors than ever before (63 percent) are calling on
companies to increase their capital spending.
Equities are in greater favor than at any time since the start of the
year. A net 48 percent of asset allocators report overweights, up 11
percentage points month-on-month, even though a net 15 percent now
regard the asset class as over-valued – this measure’s strongest
response since 2000. Appetite for real estate has also risen. The net 6
percent overweight reported ranks as the highest in eight years.
In contrast, underweight positions in bonds (now regarded as over-valued
by a net 75 percent) have reached their highest level since the end of
The prospect of debt defaults in China has strengthened as the most
significant risk on investors’ horizon. It is now cited by 36 percent of
respondents. 20 percent worry most over potential ‘asset mania’ – a new
category introduced in the survey this month.
Even so, investors have reduced their cash buffers. Although still
somewhat high, average holdings of 4.5 percent are at their lowest since
“Although fund inflows and oil prices argue for near-term consolidation,
the case for a summer ‘melt-up’ remains stronger than for a meltdown as
high liquidity and low growth force investor cash levels down,” said
Michael Hartnett, chief investment strategist at BofA Merrill Lynch
“Europe has been a cheap way to get equity exposure, but investors no
longer see Europe as cheap. This together with some uncertainty on the
level of growth may be why optimism is starting to wane,” said Obe
Ejikeme, European equity and quantitative strategist.
European QE postponed
Investors no longer see quantitative easing by the European Central Bank
as imminent. 42 percent of respondents anticipate any ECB program coming
in Q4 or even 2015, up from 19 percent last month. A further 22 percent
expect no action. Against this background, longer-term conviction
towards European equities has started to decline. A net 21 percent now
see Europe as the equity market they are most likely to overweight over
the next year, down seven percentage points month-on-month.
However, current allocations suggest global investors are not yet ready
to give up on the region. Net overweights have risen for the second
consecutive month, to a net 43 percent.
Elsewhere, regional fund managers are already showing signs of caution.
A net 6 percent of now regard European equities as over-valued – the
highest proportion since 2000. As recently as April a net 16 percent
viewed the market as under-valued.
Japan picks up
Japanese equities have declined 7 percent this year, underperforming
other global markets. The survey shows global investors treating this as
a buying opportunity. A net 21 percent are now overweight, up from a net
7 percent in May.
Moreover, a net 10 percent favor overweighting Japan in preference to
all other equity markets in the next year.
These changes come as regional fund managers turn significantly more
positive on Japan’s outlook than recently. A net 73 percent expect the
country’s economy to strengthen over the next 12 months. This represents
a 20 percentage point rise in the space of two months.
Bullishness on the U.S. dollar has re-emerged strongly. A net 79 percent
of respondents now expect the currency to appreciate over the next year.
This stands out as one of the strongest readings on this measure in the
past 15 years.
In contrast, a net 28 and 48 percent expect the Euro and Japanese yen,
respectively, to weaken over the same period. The European currency’s
reading has declined seven percentage points month-on-month. This
appears to reflect a combination of the ECB’s dovish stance and some
weaker European macro data.
Fund Manager Survey
An overall total of 223 panelists with US$581 billion of assets under
management participated in the survey from 6 June to 12 June 2014. A
total of 167 managers, managing US$422 billion, participated in the
global survey. A total of 120 managers, managing US$270 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.
BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers more than 3,300
stocks and 1,190 credits globally and ranks in the top tier in many
external surveys. Most recently, the group was named Top Global Research
Firm of 2013 by Institutional Investor magazine; No. 1 in the 2014
Institutional Investor All-Asia survey for the fourth consecutive year;
No. 1 in the 2014 Institutional Investor All-Europe survey; No. 1 in the
Institutional Investor 2013 Emerging Market & Fixed Income Survey; No. 2
in the 2013 Institutional Investor All-America survey; No. 2 in the 2013
All-Latin America survey; and No. 2 in the 2013 All-China survey. The
group was also named No. 2 in the 2014 Institutional Investor All-Europe
Fixed Income Research survey; and No. 2 in the 2013 All-America Fixed
Income survey for the second consecutive year.
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