Investment Strategies
Merrill Lynch WM Likes Equities Unless They Are Japanese, European
Merrill Lynch Wealth Management favours equities with the exception of those in Japan and the eurozone as the single currency bloc languishes under the cloud of a possible crackup, while the firm is bullish on the dollar, it said in a regular outlook update.
The background to Merrill’s views is dominated by the eurozone position, as is the case with a number of its peers, such as Deutsche Bank's private wealth management arm, HSBC Private Bank and Coutts.
Moves by the European Central Bank to support the inter-bank funding market should be marginally positive for the eurozone in the near term as this reduces the risk of banking failures but banks are still nervous about lending to each other, Bill O’Neill, chief investment officer, EMEA Merrill Lynch Wealth Management, said.
“A big concern for 2012 is the 'wall of funding' due to hit the bond markets. Sovereigns and banks alike have a large amount of debt falling due in 2012 – around €1.5 trillion (around $1.96 trillion) for sovereigns (including €600 billion for peripherals) – and around €800 billion for banks,” he said.
On UK equities, O’Neill is positive, suggesting that further monetary easing by the Bank of England should be supportive; on the US, the market is already pricing in a negative economic outlook but earnings are starting to be downgraded.
He is negative on the eurozone, as policy “paralysis” about the debt position in the “peripheral” nations prevents the markets obtaining some direction.
In the case of Japan, O’Neill said equity market fundamentals “have begun to deteriorate”. As for emerging market equities, Merrill Lynch is neutral, seeing that monetary policy will loosen as emerging market inflation risks are seen to fade.
Like a lot of his peers, O’Neill is negative on government bonds, seeing that they are only able to offer investors value in the event of a “double-dip” recession. On credit more generally, however, he is favourable, such as towards high-yield bonds.
Elsewhere, O’Neill is favourable towards UK real estate although cautious in the short term.
