Some optimism has re-emerged among global investors, according to the latest BofA Merrill Lynch Survey of Fund Managers.
The global survey of institutional investors finds that far fewer of them are now predicting a global slowdown. Only a net 3% believe the world economy will weaken in the coming 12 months, down from a net 27% in December – the biggest one-month improvement in the growth outlook since May 2009.
And, it also reports that many investors are showing a greater appetite to take risk. Cash levels have fallen to their lowest levels since July 2011, representing 4.4% of the average portfolio, down from 4.9% in December.
The survey also says that fears of a global corporate profit slowdown have receded in the past month. While a net 21% still expects profits worldwide to deteriorate in 2012, that’s sharply lower than the net 41% that held that view in December. And, the proportion of the panel expecting corporate earnings growth to be under 10% has fallen to a net 42% from a net 60%.
That said, investors do remain concerned about geopolitical risk, the survey notes. The proportion of respondents viewing geopolitical risk as ‘above normal’ has jumped to 69% from 48% last month.
“Investors are tip-toeing rather than hurtling toward higher risk exposure; the U.S. market and high quality cyclical sectors, such as energy and tech, have been the main beneficiaries of lower cash holdings,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.
“Despite improvement in global and European growth expectations, asset allocators remain deeply skeptical towards European equities, especially banks,” added Gary Baker, head of European equities strategy at the firm.
Investors continue to favour the U.S., particularly over Europe. A net 56% believes that the outlook for corporate profits is more favorable in the U.S. than any other region, up from a net 50% in December. And, a net 70% say the profit outlook for the eurozone is the least favourable of all regions.
So, asset allocators have further increased their exposure to U.S. equities, with a net 28% overweight U.S. equities, up from a net 23% in December. And, it reports that a net 31% remain underweight eurozone equities.
Technology is the most favoured global sector in the latest survey, with 39% of investors overweight technology, up from a net 31% in December. European banks remain decidedly out of favour, with 50% of European fund managers now underweight banks.
An overall total of 286 panelists with US$818 billion of assets under management participated in the survey from January 6 to 12.