Alarmed Investors Transfixed By Eurozone; Prefer US, Emerging Markets - Survey

Eliane Chavagnon London 16 November 2011

Alarmed Investors Transfixed By Eurozone; Prefer US, Emerging Markets - Survey

In light of the eurozone quandary, global investors have turned to US and emerging market equities for respite, according to Bank of America Merrill Lynch’s survey of fund managers for November.

Overall, the proportion of respondents who said they were underweight equities fell from 7 per cent last month to 5 per cent this month. Meanwhile, the proportion of investors’ overweight US equities rose by a quarter to a net 20 per cent.

The survey of investors overseeing a total of $665 billion of assets was carried out at a time of heightened fears that at least one nation – possibly Greece – could be forced out of the single currency due to its crushing debt burden. At a recent press briefing, the Swiss private bank Pictet, for example, said that eurozone woes were the single greatest uncertainty in the global economy.

Despite a weak October outlook, the proportion of investors overweight in global emerging markets rose from 18 per cent to 27 per cent this month, the survey showed.

The report suggests the eurozone is still the least popular region, as the number of investors underweight the region's equities dropped by one per cent point to a net 30 per cent.

This is reinforced by the fact that the proportion of Europeans forecasting a regional recession has almost doubled, as a net 72 per cent of European respondents to the regional survey saying that Europe will suffer a recession within the next year, up from a net 37 per cent taking this view in October.

Yet fears of a global recession have eased, as a net 31 per cent of investors expect the world economy to avoid a recession, a figure up from a net 25 per cent last month.

“Investors are showing belief in emerging market growth and US resilience, which is key to retaining positive global sentiment,” said Michael Hartnett, chief global equities strategist at BofA Merrill Lynch Research.

“European growth concerns are more intense, but sentiment looks to be close to rock bottom – unless Europe’s problems spread to the rest of the world,” he said in the report.

A “soft landing” for China

The report’s findings also reveal improved confidence in China’s economy. Some 78 per cent of the survey respondents expect a “soft landing”, with China delivering over 7 per cent growth during the year.

Moreover, the proportion of regional investors believing that China’s economy will weaken in the coming year has fallen to a net 25 per cent from a net 47 per cent in October.

As concerns over higher inflation have dwindled since September, the cloud over emerging markets in recent months is beginning to dissipate. A net 59 per cent of respondents from the Asia-Pacific region (excluding Japan) segment of the regional survey expect inflation to reduce over the next year, compared to a net 14 per cent predicting higher inflation in September.

Global asset allocators have shifted from being underweight commodities in October to neutral this month, with positive equity allocations moves in energy and materials.

The percentage of allocators underweight materials in October has fallen from 9 per cent to a net 1 per cent. Energy stocks, on the other hand, are up from 11 per cent last month to a net 20 per cent this month.

Despite the report’s encouraging sentiment regarding US equities, 53 per cent of the global panel expects the US to face a further debt rating downgrade by 2013.

A total of 258 panelists participated in the survey from 4 to 10 November. The survey was conducted with the help of market research company TNS.


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