BofA Merrill Lynch Fund Manager Survey Finds Investors Increasingly Confident in U.S. Outlook
Increasing confidence in the outlook for the U.S. dollar and U.S.
equities is offsetting investors’ renewed concerns over China, according
to the BofA Merrill Lynch Fund Manager Survey for March.
This month registered the highest level of dollar bullishness in the
survey’s history. A net 72 percent of respondents now expect the U.S.
currency to appreciate over the next year, a 30-point increase in a
month. Bearishness on U.S. stocks has also reversed. A net 5 percent
identify the U.S. as the regional market it most wishes to overweight,
compared to January’s net 19 percent underweight. The U.S. also offers
the best outlook of any region for corporate profits by far, investors
believe.
Against this background, investors remain positive on the global
economy’s recovery and continue to increase exposure to equity markets.
A net 61 percent expects macroeconomic performance around the world to
strengthen over the next year, a slight increase on last month’s
reading. A net 57 percent of asset allocators are now overweight
equities, up from a net 51 percent in the two previous months.
This positive stance offsets a gloomier view of China. Only a net 14
percent of regional investors now expect the Chinese economy to be
stronger in a year’s time. This represents one of the sharpest falls in
this reading in the survey’s history. Significantly increased fears of a
hard landing in China are reflected in a shift out of emerging market
equities and into developed markets (mainly the U.S. and Japan).
“Relative U.S. economic outperformance on the back of the housing
market’s ongoing improvement and the energy independence story will lead
a secular uptrend in the dollar. U.S. equities’ leadership in the ‘Great
Rotation’ suggests developed market equities are the likeliest winner in
this scenario,” Michael Hartnett, chief investment strategist at BofA
Merrill Lynch Global Research, said. “A disconnect between European
investors’ increasing optimism about the region and global investors’
continued caution over Europe is also apparent in the survey,” added
John Bilton, European investment strategist.
European enthusiasm emerges
European fund managers have adopted a much more positive outlook for the
region’s economy. A net 40 percent now expects it to strengthen over the
next year. This compares with a net 8 percent two months ago.
This stance is also reflected in expectations of corporate performance.
While a net 73 percent judged in January that consensus earnings
estimates for European companies were too high, this figure has more
than halved to a net 34 percent now. The largest single group of
respondents (40 percent) regards estimates as about right, while a net
17 percent expect corporate earnings in the region to improve over the
next 12 months. At the end of last year, this reading was consistently
negative.
Global investors are taking a more cautious view, which is evident in
reduced positioning in European equities. They now have a net 4 percent
overweight in the region.
Risk appetite slightly reduced
While global investors’ stance towards equities remains constructive,
their risk appetite slipped back slightly this month. The ML Risk &
Liquidity Composite Indicator declined by one percentage point
month-on-month, its first fall in nine months. Even so, this measure
remains well above its average over the past 10 years.
Moreover, asset allocators are more inclined to fund future equity
purchases by reducing cash holdings, which remain at a positive 3.8
percent. The March survey found 28 percent would use cash in this way,
versus February’s 22 percent. The majority, though, are more inclined to
lighten government bond holdings to facilitate fresh buying of equities.
Sectoral shift supports banks
Investors are more positive on Banks than at any time since December
2006, the survey reveals. A net 14 percent have moved to an overweight
position this month – up eight percentage points month-on-month.
They are funding this move by lowering positions in Materials stocks (a
China proxy affected by lower conviction evident elsewhere in the
survey), where a net 17 percent are now underweight. In addition, they
have reduced exposure in Telecoms to a net 28 percent underweight. This
represents the lowest level of appetite for this sector in more than
seven years.
Renewed appetite for Technology exposure is also evident in the panel’s
responses. Overweights in the sector have climbed to a net 35 percent,
reversing a pattern of declining exposure over the past year.
Fund Manager Survey
An overall total of 254 panelists with US$691
billion of assets under management participated in the survey from 8
March to 14 March. A total of 198 managers, managing US$578 billion,
participated in the global survey. A total of 124 managers, managing
US$241 billion, participated in the regional surveys. The survey was
conducted by BofA Merrill Lynch 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
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survey for the second consecutive year; No. 2 in the 2012 Institutional
Investor All-China, All-Europe, All-Japan and All-Latin America surveys;
and No. 3 in the 2012 Institutional Investor All-America survey. The
group was also named No. 2 in the 2012 Institutional Investor
All-America Fixed Income survey and in the 2012 Emerging Markets Equity
and Fixed Income survey, covering Emerging Europe, Middle East and
Africa.
Additionally, BofA Merrill Lynch Global Research was named the No. 1
Global Broker by Financial Times/StarMine, as well as ranked No. 1 in
the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in
Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street
2012 Analysts Surveys. The group was also the winner of the Emerging
Markets magazine’s EM Research Global Award for 2010 and 2011.
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