18 May 2010
Investors have sought refuge in US markets in the week that Euro-zone states delivered a financial package to allay sovereign debt concerns, according to the BofA Merrill Lynch Survey of Fund Managers for May.
The survey, conducted from May 7-13, shows how global investors are buying US equities and retaining confidence in the US dollar while the survey’s risk indicator experienced its largest one-month fall since 2003. Average cash balances rose to 4.3% of portfolios from 3.5% in April and the proportion of investors overweight global equities slipped sharply to a net 30% from a net 52% in April.
But the number of respondents overweight US equities ticked upwards in April. A net 66% of the panel expects the dollar to appreciate the most of the reserve currencies. The gulf in confidence between US and European corporate profit has reached a seven-year high.
A net 33% of respondents believe that the outlook for corporate profits is most favourable in the U.S. while a net 41% say that the outlook is least favourable in the Euro-zone. That spread, of 74 percentage points, is the widest since July 2003. The number of US-based investors expecting double-digit earnings growth has risen to a net 54% from 50% in April.
“May’s survey highlights a flight to the US, driven by the uncertainty in Europe and underscores a positive US growth outlook,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research. “The survey shows that investors have capitulated on Europe, beaten down by sovereign debt concerns and faltering growth expectations,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.
Concerns in both the Euro-zone and emerging markets have shaken investors’ confidence in global equities and growth prospects for the global economy. The number of investors who believe the global economy will strengthen in the next 12 months fell to a net 42% from a net 61% in April. Confidence in earnings also slipped. A net 47% of the panel says that profits will improve in the next year, down from a net 67% in April.
The survey points to deepening negative sentiment towards Europe. A net 46% of the panel expects the euro to depreciate, up significantly from a net 23% in April. A net 30% of investors say that the Euro-zone is the region they would most like to underweight, the lowest reading recorded in the survey. The figure in April was just a net 13%.
The Regional Survey echoes this pessimism with European investors reducing their expectations of improved growth to the lowest in a year. A net 23% expect Europe’s economy to strengthen in the year ahead, down from a net 62% in April. Japanese fund managers are more bullish about their macro prospects than their counterparts in all other regions with a net 71% expecting the economy to strengthen in the coming year.
Positive sentiment towards emerging market equities has dipped to its lowest since early 2009. The number of respondents overweight global emerging markets equities stands at a net 19% this month, down from a net 31% in April. The proportion of the panel saying that emerging markets have the most favourable outlook for corporate profits is a net 23% compared with a net 34% a month ago.
GEM fund managers have turned more bearish on China than any month since February 2009. The Regional Survey shows that a net 29% of GEM investors expect the Chinese economy to weaken in the next 12 months compared with a net 5% predicting a stronger economy in April.
With questions over global growth and profit expectations, fund managers are pushing back the date they expect interest rate rises to start. 90% of European investors say that the European Central Bank will not raise rates in 2010, up from 62% a month ago.
One in four respondents (25%) to the global survey expect no rate rise by the US Federal Reserve before April 2011, compared with one in 10 respondents (10%) a month ago. Only 39% of the panel expects a rate increase in 2010, compared with 56% in April. These readings mirror a fall in the number of investors forecasting higher global core inflation a year from now, down to a net 35% from a net 46% in April.
The survey, conducted from May 7-13, shows how global investors are buying US equities and retaining confidence in the US dollar while the survey’s risk indicator experienced its largest one-month fall since 2003. Average cash balances rose to 4.3% of portfolios from 3.5% in April and the proportion of investors overweight global equities slipped sharply to a net 30% from a net 52% in April.
But the number of respondents overweight US equities ticked upwards in April. A net 66% of the panel expects the dollar to appreciate the most of the reserve currencies. The gulf in confidence between US and European corporate profit has reached a seven-year high.
A net 33% of respondents believe that the outlook for corporate profits is most favourable in the U.S. while a net 41% say that the outlook is least favourable in the Euro-zone. That spread, of 74 percentage points, is the widest since July 2003. The number of US-based investors expecting double-digit earnings growth has risen to a net 54% from 50% in April.
“May’s survey highlights a flight to the US, driven by the uncertainty in Europe and underscores a positive US growth outlook,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research. “The survey shows that investors have capitulated on Europe, beaten down by sovereign debt concerns and faltering growth expectations,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.
Concerns in both the Euro-zone and emerging markets have shaken investors’ confidence in global equities and growth prospects for the global economy. The number of investors who believe the global economy will strengthen in the next 12 months fell to a net 42% from a net 61% in April. Confidence in earnings also slipped. A net 47% of the panel says that profits will improve in the next year, down from a net 67% in April.
The survey points to deepening negative sentiment towards Europe. A net 46% of the panel expects the euro to depreciate, up significantly from a net 23% in April. A net 30% of investors say that the Euro-zone is the region they would most like to underweight, the lowest reading recorded in the survey. The figure in April was just a net 13%.
The Regional Survey echoes this pessimism with European investors reducing their expectations of improved growth to the lowest in a year. A net 23% expect Europe’s economy to strengthen in the year ahead, down from a net 62% in April. Japanese fund managers are more bullish about their macro prospects than their counterparts in all other regions with a net 71% expecting the economy to strengthen in the coming year.
Positive sentiment towards emerging market equities has dipped to its lowest since early 2009. The number of respondents overweight global emerging markets equities stands at a net 19% this month, down from a net 31% in April. The proportion of the panel saying that emerging markets have the most favourable outlook for corporate profits is a net 23% compared with a net 34% a month ago.
GEM fund managers have turned more bearish on China than any month since February 2009. The Regional Survey shows that a net 29% of GEM investors expect the Chinese economy to weaken in the next 12 months compared with a net 5% predicting a stronger economy in April.
With questions over global growth and profit expectations, fund managers are pushing back the date they expect interest rate rises to start. 90% of European investors say that the European Central Bank will not raise rates in 2010, up from 62% a month ago.
One in four respondents (25%) to the global survey expect no rate rise by the US Federal Reserve before April 2011, compared with one in 10 respondents (10%) a month ago. Only 39% of the panel expects a rate increase in 2010, compared with 56% in April. These readings mirror a fall in the number of investors forecasting higher global core inflation a year from now, down to a net 35% from a net 46% in April.
