Confidence in a recovering global economy is extending into 2013 as investor fears surrounding the fiscal cliff ease, says a Bank of America-Merrill Lynch (BofA Merrill Lynch) Fund Manager Survey for December.
A net 40% of investors believe the global economy will strengthen in the year ahead, a rise of six percentage points month-on-month (m-o-m) and double the reading two months ago, the findings suggest. The number of investors viewing the US fiscal cliff as the biggest tail risk has fallen to 47%, down from 54% in November. However, the event is still the numero uno concern.
An overall total of 255 panelists with $664 billion of assets under management (AUM) participated in the survey from 7 December to 13 December, carried out by BofA Merrill Lynch Research with the help of market research company, TNS.
Preferred region
Emerging Markets (EM) are the preferred region for the panel. A net 67% of the regional survey respondents (135 managers, managing $305 billion, participated in the regional surveys) say China’s economy will strengthen in the coming year, up from a net 51% in October.
“The bulls are back in China, while policy makers elsewhere put bears onto the back foot. If the bulls are to claim a decisive victory, we need hard evidence that the economy is reaccelerating,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research said.
Emerging market corporates have consolidated their position as the panel’s favourite. A net 38% of investors say that Global Emerging Market equities have the best outlook for corporate profits in the coming year, up from a net 32% in November.
A net 17% of the global panel would like to underweight Japanese equities in the coming year, but that’s less than the net 30% taking that view in November. A net 90% of Japanese investors expect the economy to strengthen in the coming year, compared with a net 18% in November, while a net 81% is forecasting improved earnings in the coming 12 months.
Investors say that liquidity conditions are at their best since May of this year. The proportion of respondents rating liquidity conditions as “positive” rose to a net 23%, up from a net 13% in November.
The number of asset allocators overweight US equities has fallen since November. However, allocations to the euro-zone are outweighing US allocations for the first time since November 2010. In terms of sector, investors have maintained a broadly “risk-on” stance – allocations to cyclical sectors Consumer Discretionary and Industrials have increased, and the market is firmly overweight both, the survey findings suggest, with Pharmaceuticals as the preferred investment option.
Corporate profits
The outlook for corporate performance has improved for the third successive month and more investors are calling for companies to raise capital expenditure, the survey states. A net 11% of investors believe profits will improve in the coming 12 months – a 22-point swing from October when a net 11% were forecasting lower profits.
A net 37% believes global corporate earnings growth will be less than 10%, down from a net 52% in November. A net 64% of the panel believes that companies around the world are under-investing, the highest reading in the history of the survey and an increase from a net 59% month-on-month.
