US Equities Favored In Times Of Low Growth, Inflation - BoA Merrill Lynch

Eliane Chavagnon 14 December 2011

US Equities Favored In Times Of Low Growth, Inflation - BoA Merrill Lynch

Global investors are turning to US equities in anticipation of low growth and inflation next year, according to the Bank of America Merrill Lynch fund manager survey for December.

A net 50 per cent of the respondents said that the outlook for corporate profits is most favorable in the US. The eurozone, however, has the most unfavorable outlook, according to a net 72 per cent of respondents.

“With improving growth prospects, US equities are seen as a popular destination and a refuge from turmoil,” said Michael Hartnett, chief global equity strategist.

“Investors are slightly more optimistic about equities but retain a defensive approach, so that means reduced European exposure and a preference for counter-cyclical stocks,” added Gary Baker, head of European equities strategy.

For example, a net 8 per cent of asset allocators are overweight equities this month, compared with a net 5 per cent underweight in November. The only increase in equity positions was in the US.

Global investors’ perceptions regarding the future of the euro and eurozone are divided, as 48 per cent believe that no member state will exit the euro in 2012, or indeed the foreseeable future.

A stronger dollar and weaker euro is forecast next year, reflected by the fact that nearly a quarter of the 190 institutional investors questioned (24 per cent) expect at least one of the 17 member states to leave the euro in the first half of 2012.

Sector positioning

Meanwhile, investors have consolidated “defensive positioning” in equities. Globally, allocations to pharmaceuticals and staples increased over the past month.

Pharmaceuticals is now the most popular global sector, with a net 36 per cent of respondents holding an overweight position, up from a net 31 per cent in November.

At the same time, there has also been reduced exposure to growth and cyclical sectors, including technology, industrials and discretionary consumer, and in terms of liquidity, conditions have deteriorated significantly in the past month, reaching their worst level since April 2009.

Whereas over half of respondents described the market conditions as positive at the beginning of the year, only 4 per cent held the same view in October.

The survey, which took place from 2 to 8 December, involved 255 respondents with $762 billion of assets under management.

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