Global investors are expecting another year of low growth and low inflation, according to the latest version of BofA Merrill Lynch’s fund manager survey.
The survey of 190 institutional investors indicates that almost two-thirds predict 2012 will be a year of below-trend growth and below-trend inflation. Merrill says that investors are responding to the weak outlook with a preference for U.S. and emerging market equities, while the negative stance towards the eurozone hardens.
It reports that a net 50% of the panel says that the outlook for corporate profits is the most favourable in the U.S. Whereas, a record number, a net 72%, name the eurozone as having the least favourable outlook for corporate profits. Investors have also expressed a view that the dollar will strengthen and the euro weaken in 2012, it says.
The growing appeal of U.S. equities means that a net 8% of asset allocators are now overweight equities, compared with a net 5% underweight last month.
“With improving growth prospects, U.S. equities are seen as a popular destination and a refuge from turmoil,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.
“Investors are slightly more optimistic about equities but retain a defensive approach, so that means reduced European exposure and a preference for counter-cyclical stocks,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.
Merrill says that investors have consolidated their defensive positioning in equities. Global allocations to pharmaceuticals and staples increased over the past month. Pharma has taken over as the most popular global sector with a net 36% of respondents holding an overweight position.
Conversely, investors reduced exposure to growth and cyclical sectors including technology, industrials and discretionary.
Additionally, the firm reports that global investors are split over the future of the euro and the question about whether the eurozone can remain intact. It says that nearly half of the panel (48%) believes that no member state will exit the euro in 2012 or the foreseeable future.
However, nearly a quarter of the panel expect one of the 17 member states to leave the euro in the first half of 2012. In total, 45% expect a member to depart in the foreseeable future, with 7% undecided.
Merrill says that key indicators of market sentiment show parallels with the credit crunch months of early 2009. Investors say that liquidity conditions have deteriorated significantly in the past month to reach their worst level since April 2009. A net 13% of the panel rates conditions (such as depth of market and breadth of bid-offer spreads) as negative.
And it notes that concerns about inflation have eased to levels not seen since 2009, it notes. The proportion of the panel predicting a fall in inflation fell to a net 34% in December, down two percentage points since November and the lowest reading since March 2009. For the first time since March 2009, a net 6% believes that global monetary policy should be more stimulative.
An overall total of 255 panelists with US$762 billion of assets under management participated in the survey from December 2 to 8.