BofA Merrill Lynch Fund Manager Survey Finds Investors Moderating Earlier Exuberance, Though Still Positive
Global investors are moderating their earlier exuberance in the face of
somewhat lower conviction over global growth, though they remain
positive towards equity markets overall, according to the BofA Merrill
Lynch Fund Manager Survey for April.
A net 49 percent of respondents now expect the global economy to
strengthen in the next 12 months. This is a decline of as much as 12
percentage points from March. While the threat of a U.S. fiscal crisis
has largely receded, anxiety over the eurozone and new risks –
particularly the potential for conflict in Korea – has intensified. A
“hard landing” in China also remains a concern.
Investors’ more cautious stance is reflected in their increased cash
holdings. These are now at the highest level reported by the survey in
six months (4.3 percent).
Fund managers showed sharper regional preferences than they have in past
surveys. They are increasingly positive towards the U.S. and Japan,
where 12-month views have reached their most bullish in seven years.
Appetite for exposure to the U.S. dollar remains at the highest level in
the survey’s history.
At the same time, panelists have grown more negative on both emerging
markets and the eurozone. A small majority now look to underweight
emerging markets – the survey’s weakest reading on this measure in over
two years after a 30-point decline in just two months. Confidence in
eurozone growth also fell sharply this month. A net 19 percent of
regional investors expect the region to strengthen this year, down from
March’s net 40 percent.
“‘Abenomics’ signals that Japanese policy-makers are joining the fight
against deflation. This reinforces our expectation of a ‘Great Rotation’
into equities from fixed income,” said Michael Hartnett, chief
investment strategist at BofA Merrill Lynch Global Research. “European
expectations and risk appetite are moderating as global caution over the
region wins out,” added John Bilton, European investment strategist.
Eurozone confidence declines
Lower confidence in eurozone growth is reflected in global investors’
move to a net 8 percent underweight. Regional investors sharply cut
cyclical exposures such as Construction (down 38 percentage points),
Basic Resources (down 22 points) and Oil & Gas (down 17 points) this
month, while increasing defensive plays like Healthcare/Pharma (up 20
percentage points to a net overweight).
In a new question for the survey, fund managers were asked what event
would be most positive for European risk appetite. More than half of
respondents identified steps towards a regional banking union and
agreement on structural reforms in key periphery economies. Given the
inter-connection between eurozone banks and sovereigns, this reinforces
the regional risks highlighted elsewhere in the survey.
Japan surpasses China
Confidence in Japan’s new expansionary policy is evident in the survey.
Every regional fund manager polled expects the economy to strengthen
over the next 12 months. Global investors also expect the policy shift
to weaken the yen. Their appetite for the currency is now at its lowest
since February 2002.
In contrast, bullishness on China is evaporating. A net 13 percent of
regional investors now expect the country’s economy to strengthen in the
next 12 months, down from a net 71 percent as recently as January. The
survey’s global reading on this question is now down to its lowest level
since last October.
Call for capex
The survey continues to highlight fund managers’ call for companies to
put their significant volumes of cash to work, or to return it to their
owners. With a net 60 percent regarding companies as underinvesting in
their businesses, 48 percent would most like to see excess corporate
cash flow directed to higher capital spending. Thirty-four percent want
surplus funds distributed back to them through buy-backs or dividends,
with only a far lower 11 percent viewing the reinforcement of balance
sheets as a priority.
Despite this call for higher capex and their still-benign macroeconomic
view, investors are more doubtful about prospects for significant global
earnings growth. A net 38 percent now judge that companies are unlikely
to raise EPS by as much as 10 percent this year. This stance has grown
much more skeptical since March. Their expectations of corporate margin
performance weakened similarly.
Survey of Fund Managers
An overall total of 252 panelists with
US$725 billion of assets under management participated in the survey
from 5 April to 11 April. A total of 200 managers, managing US$578
billion, participated in the global survey. A total of 125 managers,
managing US$293 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.
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