Investor Appetite for Japanese and European Stocks Steps Up
NEW YORK--(BUSINESS WIRE)--
Investors enter 2014 optimistic about the global economy and outlook for
Japanese and European equities, according to the BofA Merrill Lynch Fund
Manager Survey for December.
The proportion of investors believing the global economy will strengthen
in the year ahead has risen to a net 71 percent from a net 67 percent in
November. Conviction in the global economy is far stronger than 12
months ago when a net 40 percent of the panel predicted it would
Similarly, the outlook for profits has ticked upwards month-on-month and
is far stronger than the end of 2012. A net 41 percent believes global
profits will improve over the coming year, compared with a net 11
percent taking that view a year ago. Fifty-five percent of investors say
that they want corporations to prioritize capital expenditure over other
uses of cash flow. That represents a survey high and an increase from 53
percent in November and 45 percent 12 months ago.
Preference for equities over bonds remains at historically high levels.
The spread between equity overweights and bond underweights stood at 118
percentage points in December, compared with 76 points one year ago and
just 19 points in July 2012.
Investors demonstrated a strong preference for Europe and Japan. Global
investors have increased overweight positions in Japanese and eurozone
equities in the past month and indicated appetite for more, while
domestic investors in each region have become more optimistic.
"Weakness in the U.S. dollar next year is the biggest threat to
positioning given a consensus to go long Japanese and European
cyclicals," said Michael Hartnett, chief investment strategist at BofA
Merrill Lynch Global Research. "Belief in the European recovery has
reached a stretched level, leaving markets vulnerable to profit taking
as portfolio managers seek uncrowded alternatives," said John Bilton,
European investment strategist.
Rising conviction about Japan and eurozone
Global investors have increased allocations to Japan and Europe and
suggested that they will continue to do so into 2014. A net 34 percent
of asset allocators are overweight Japanese equities this month, up
significantly from a net 24 percent in November. Furthermore, a net 22
percent of the investor panel says that Japan is the region they most
would like to overweight.
Sentiment is also positive among domestic investors. A net 44 percent of
Japanese investors responding to the regional survey expect the
country's economy to strengthen in 2014, up from a net 27 percent last
month. A net 33 percent believe that Japanese equities are undervalued.
Positivity towards Europe and within Europe is strong. Allocations to
eurozone equities have risen slightly from existing high levels. A net
43 percent of asset allocators are overweight eurozone equities, up two
percentage points month-on-month. A net 24 percent of the panel says
that the eurozone is the region they most want to overweight - although
this is down month-on-month.
Investors within Europe are increasingly bullish about the region's
outlook. A net 83 percent of respondents to the regional survey believe
the European economy will strengthen in 2014, up from a net 74 percent
in November. A net 83 percent say recession in the region is unlikely. A
net 64 percent expect corporate profits to improve in 2014.
Banks popular - commodities unpopular
Investors and asset allocators have increased allocations towards banks
over the past month. The net percentage of the global panel overweight
banks rose to a net 17 percent from a net 12 percent in November.
European investors have moved particularly sharply into this maligned
sector. A net 22 percent of European respondents said they are
overweight banks this month, compared with an equal number overweight
and underweight in November.
Commodities and related stocks remain deeply unpopular. A net 31 percent
of asset allocators are underweight commodities, up seven percentage
points month-on-month. A net 14 percent are underweight energy stocks, a
monthly rise of three percentage points.
More cash on the sidelines
Average cash balances stand at 4.5 percent of portfolios, historically a
level that is a positive signal for equities. A net 16 percent of asset
allocators say they are overweight cash, up from a net 9 percent in
November. The higher cash levels coincide with expectations of higher
interest rates and a belief by three-quarters of the panel that the Fed
will introduce tapering in the first quarter of 2014.
BofA Merrill Lynch Fund Manager Survey
An overall total of 237
panelists with US$655 billion of assets under management participated in
the survey from 6 December to 12 December 2013. A total of 188 managers,
managing US$530 billion, participated in the global survey. A total of
119 managers, managing US$273 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 more than 3,500 stocks and 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 2013 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 2013 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.
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Source: Bank of America Merrill Lynch