19/01/2011
Investor appetite for equities returns
p { margin-bottom: 0.08in; } Positive economic sentiment has helped drive investor appetite for global equities to its highest level in 3 1/2 years, according to the BofA Merrill Lynch Survey of Fund Managers for January. A total of 199 fund managers, managing a total of USD562 billion, participated in the global survey from 7 January to 13 January. A net 55 percent of asset allocators say that they are overweight global equities, the highest reading since July 2007. It represents a significant increase from December when a net 40 percent was overweight the asset class. At the same time, bond allocations fell. A net 54 percent is underweight bonds, up from a net 47 percent a month ago. Behind this rise is growing confidence in the global economy and corporate profits. A net 55 percent of investors expect the world’s economy to strengthen in 2011 with 39 percent predicting «above trend» growth in the coming 12 months, the highest reading since the question was introduced in February 2008. A net 57 percent believes that corporate profits will rise 10 percent or more this year, up from 45 percent in December. A growing majority expects global inflation to increase this year - a net 72 percent in January, up from a net 48 percent two months ago. But higher inflation is not seen necessarily as a threat. A net 42 percent of investors believe monetary policy is «too stimulative,» fewer than in November. «The combination of growth optimism and a benign view towards higher inflation provide a potent case for equity investment,» said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research. «Investors believe monetary easing is working; in the absence of either tighter policy or weaker data, equity enthusiasm looks contagious,» said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research. Growing belief in U.S. equities, already evident in December’s survey, has firmed significantly this month. A net 27 percent of the global panel is now overweight U.S. equities, the highest reading since November 2008 and surpassing December’s level of a net 16 percent. And a net 15 percent of the panel would like to overweight U.S. equities more than any other region, up from a net 7 percent in December. A net 43 percent expects the U.S. dollar to appreciate versus the euro or the yen on a trade-weighted basis, up from a net 14 percent two months ago. Japan has also benefited from improved sentiment. A net 57 percent of respondents to the regional Japanese survey expect the country’s economy to improve this year, up from a net 42 percent in December. Sentiment has improved steadily since September last year when there was an even split between those predicting a stronger economy and those expecting weakness. Since September, investors have consistently become more optimistic about Japan. Global emerging market support remains high but has continued to decline. A net 43 percent of asset allocators are overweight GEM equities, but this is lower than the net 56 percent two months ago. A net 20 percent of investors want to overweight GEM equities more than any other region. This reading has slipped from a net 31 percent in December. These lower readings come as belief in China’s economic prospects has eroded. A net 19 percent of respondents to the regional survey say that China’s economy will weaken this year. Two months ago, a net 16 percent forecast a stronger Chinese economy. Finally, European fund managers have started 2011 in stronger spirits. The proportion of the panel predicting a stronger European economy has leapt to a net 44 percent from a net 26 percent last month. An increasing number believe European companies will deliver improved earnings in 2011. This optimism comes as global concerns about EU sovereign debt fund risk have fallen away from the highs of December.
