European and Japanese Equities Retain Positive Sentiment
NEW YORK--(BUSINESS WIRE)--
Investor optimism over the global economic recovery and corporate
profits has been dented as the tail risk associated with the U.S.
economy has escalated, though sentiment towards Europe has improved,
according to the BofA Merrill Lynch Fund Manager Survey for October.
The survey taken from October 4 to October 10 showed that the number of
investors believing the global economy will strengthen had fallen to a
net 54 percent from a net 69 percent in September, albeit still at
historically strong levels. A net 71 percent expect the economic growth
to remain "below trend" in the coming 12 months, up from a net 61
percent a month ago. Concern about U.S. fiscal tightening is now the
number one tail risk for 24 percent of the panel, up from only 6 percent
Expectations for a recovery in corporate profits have also fallen. Last
month, a net 41 percent said they expected corporate profits worldwide
would improve in the following 12 months - that figure has tumbled to a
net 28 percent in October. A net 18 percent believes that corporate
profit margins will decrease in the coming year, up from a net 11
percent a month ago.
Asset allocators have scaled back their equity holdings. A net 49
percent of global asset allocators are overweight equities, down from a
net 60 percent in September. Over the past month, investors have reduced
their positions in eight out of the 11 sectors monitored by the survey.
Last month, a net 9 percent of the panel remained overweight U.S.
equities, and this month, that measure has dropped to zero percent. At
the same time, investors have shifted back towards fixed income, scaling
back their underweight positions in bonds and portfolio cash levels rose.
"Events in Washington clearly caused investors to shift back towards
their benchmarks, but asset price gains can still be driven by high cash
levels," said Michael Hartnett, chief investment strategist at BofA
Merrill Lynch Global Research. "Strong flows into Europe would call for
a touch of near-term caution, but solid macro momentum in the region
suggests that any dips in EU equity markets would be enthusiastically
bought," said John Bilton, European investment strategist.
Rising conviction about European equities
Europe has been able to avoid the downward shift in global sentiment
with equity allocations reaching a six-year high. A net 46 percent of
asset allocators are overweight European equities, up from a net 36
percent September and representing the highest reading since 2007.
Global investors' outlook for European corporate profits has continued
to rise uninterrupted by events in Washington. It is now at its most
positive level since September 2007. A net 10 percent of the panel says
the eurozone is the region with the most favorable outlook, up from two
months ago when a net 5 percent forecast falling profits.
Positivity towards corporate Europe is also evident within the region.
In August, a net 55 percent of European respondents to the regional
survey said double-digit growth was unlikely in the following year. This
month, a net 6 percent says that double-digit earnings growth is likely
- a two-month swing of 61 net percentage points.
Japanese equities have also resisted the global trend in October to
record a second successive month of improvement. A net 30 percent of
global asset allocators are overweight the region, up from a net 22
percent in September.
Emerging market confidence starts to rebuild
Investors and asset allocators have increased allocations towards global
emerging market equities and have indicated in October's survey that
they see value in the region. The signals towards global emerging
markets are not universally positive, however.
Asset allocators scaled back their underweight positions. A net 10
percent of the panel was underweight emerging markets equities in
October, improved from a net 18 percent underweight a month ago. On
average, a net 26 percent of investors have been overweight the region.
A net 38 percent of the global respondents say that emerging markets
equities are the most undervalued of all the regions - in contrast, a
net 63 percent says the U.S. is the most overvalued region. The amount
of investors naming emerging markets as the region they most want to
underweight continued to fall.
At the same time, however, the outlook for China's economy worsened. A
net 5 percent of regional fund managers expect the Chinese economy to
strengthen in the coming year, down from a net 28 percent in September.
And asset allocators further reduced their exposure to commodities - an
important proxy for emerging market sentiment. A net 28 percent of asset
allocators are underweight commodities, compared with a net 16 percent
Survey of Fund Managers
An overall total of 183 panelists with
US$643 billion of assets under management participated in the survey
from October 4 to October 10, 2013. A total of 183 managers, managing
US$500 billion, participated in the global survey. A total of 118
managers, managing US$291 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
The BofA Merrill Lynch Global
Research franchise covers nearly 3,500 stocks and over 1,100 credits
globally and ranks in the top tier in many external surveys. Most
recently, the group was named Top Global Research Firm of 2012 by
Institutional Investor magazine; No. 1 in the 2013 Institutional
Investor All-Asia survey for the third consecutive year; No. 1 in the
Institutional Investor 2013 Emerging Market & Fixed Income Survey; No. 2
in the 2013 Institutional Investor All-America survey; No. 2 in the
All-Japan survey for the second consecutive year; No. 2 in the 2013
All-Latin America survey; No. 2 in the 2012 All-China survey; and No. 3
in the 2013 Institutional Investor All-Europe survey. The group was also
named No. 2 in the 2013 Institutional Investor All-America Fixed Income
survey for the second consecutive year; and No. 3 in the 2013 All-Europe
Fixed Income Research survey.
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.
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