Investors Regain Love For Eurozone Stocks; China Outlook Improves - BoA Merrill Lynch

Sandra Kilhof Reporter 18 September 2013

Investors Regain Love For Eurozone Stocks; China Outlook Improves - BoA Merrill Lynch

Investors are now so bullish on European equities that their sentiment towards this asset class has reached more than six-year highs as markets react to the current emerging market sell-off, according to the BofA Merrill Lynch Fund Manager Survey for September. The survey also showed investors raised cash holdings, which still suggests overall sentiment on the global economy is cautious.

The survey polled 236 panelists across the globe from 6 September to 12 September 2013 and revealed that allocations to eurozone equities have reached their highest level since May 2007.

The survey may add to a growing sense that the eurozone, hit by concerns about debt-laden governments and a possible breakup of the single currency bloc itself, may be on the mend at last.

Some 36 per cent of global asset allocators said they are overweight the eurozone region, more than twice the net 17 per cent recorded in August. Riding on the European surge, UK equities are also performing well as 12 per cent of asset allocators are overweight on these assets, representing an all-time high. Conversely, allocations to emerging market equities remain low with 18 per cent of the panel underweight.

In this respect, investors have signalled their intent to maintain flows into Europe, with more than a quarter of investors saying that the eurozone is the region they would most like to be overweight in the coming year. According to Bank of America, the switch in sentiment towards Europe has been swift, with only two per cent wanting to overweight the region in the August survey.

“Belief in Europe’s economy is robust and though eurozone equities have come back strongly, value remains the best on offer in developed world markets,” said John Bilton, European investment strategist.

China outlook improves

Similarly, a surge in sentiment towards China’s economy is hinting that emerging markets could be set to recover in the months ahead. In last months survey, a third of investors were seriously concerned about a weakening economy in Japan and China and were therefore becoming increasingly bearish on emerging markets. That has however changed in the September survey, as 28 per cent of respondents from Japan, Asia Pacific Rim and global emerging markets now believe that China’s economy will strengthen in the year ahead.

“Negative sentiment towards global emerging markets has stabilized. The number of investors saying that emerging markets is the region they most want to underweight has fallen to a net 21 per cent in September from a net 29 per cent a month ago. Now investors are indicating that they see the best value in emerging markets in almost a decade,” said Bank of America in a statement.

Great rotation continues

Looking more specifically at asset classes, the survey also revealed that cash levels have risen to an average of 4.6 per cent of portfolios with the proportion of asset allocators overweight cash growing.

“Investor cash levels remain high because the fear of bond markets is greater than the appetite in equity markets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

The firm’s conclusion last month that the markets are experiencing a great rotation from bonds to equities has progressed even further. The gulf between allocations towards equities and bonds is at its widest since February 2011, and the second-widest in the history of the survey. A net 68 per cent of asset allocators are underweight bonds, the greatest underweight position recorded since April 2006 – to give a bond to equity allocation spread of 128 percentage points.

An overall total of 236 panelists with $689 billion of assets under management participated in the survey from 6 September to 12 September 2013, which was conducted by BofA Merrill Lynch Research with the help of market research company TNS.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes