Global fund managers cooled their enthusiasm for equities and scaled back their risk appetite in April as concerns grew about the pace of economic growth amid fears over the eurozone and China, a poll showed.  

A net balance – subtracting pessimistic outlooks from optimistic ones – of 49 per cent of investment funds expect the global economy to grow over the next 12 months, a drop of 12 percentage points from March, according to a Bank of America Merrill Lynch monthly survey.

A total of 252 panelists overseeing $725 billion of assets took part in the survey, carried out between 5 and 11 April.

Investor sentiment has turned in more cautious direction in recent days, amid worries about military tensions between North and South Korea and fears about the plight of Cyprus and the eurozone. Fieldwork for the survey was carried out before sharp falls in the gold price and Monday’s bombings in Boston.

There has been a “moderation in risk appetite from the pretty extreme [high] levels that we have seen so far this year”, John Bilton, European investment strategist, told journalists at a briefing on the survey.

Risk
One measure of investors’ higher risk aversion is a rise in the average size of cash holdings to 4.3 per cent in April from 3.8 per cent of total assets under management.

Although fund managers remain overweight on equities in general, for the first time in eight months, their enthusiasm fell in April, to a net overweight stance of 47 per cent from 57 per cent.

Investors have also changed the view of what is the biggest risk. In April, the dangers of deflation in the debt-hit eurozone was cited as the number one risk, way ahead of “other” risks (such as North Korea), a Chinese economic “hard landing”, US fiscal problems, and a spike in the oil price. By contrast, in January, the US public finances dominated thinking as Congress and the White House were locked in a dispute over spending and tax hikes.

Another measure of some cooling of risk appetite was seen in a drop in commodities exposure, the first such decline since January 2009. In April, a net 18 per cent of fund managers said they were underweight.

In other details, a net 20 per cent of the panel said they were overweight US stocks, which is the highest level since June last year. By contrast, emerging markets, which had for a long time been investors’ darling due to strong growth rates, have lost some of their appeal as other economies, such as the US, have recovered, BoA Merrill Lynch said. In April, a net 13 per cent of panellists were overweight emerging markets, which is the lowest level for 18 months.

“I believe what we are seeing is that growth is less scarce so the need to pay up for growth in emerging markets has lessened,”  Bilton said.

Asked about the sharp recent drop in gold prices, Bilton, while eschewing specific forecasts, said a number of factors had hit the yellow metal, such as the Federal Reserve’s open discussion about when its monetary expansion (“quantitative easing”) will end; the stronger dollar exchange rate against currencies such as the Japanese yen also was negative for gold prices.

However, Bilton added that he felt that panellists giving their views to the April survey were, on balance, “over-bearish” and he had a more constructive view overall about the future path of markets.