Investors In Sunnier Mood About Economic Outlook - BoA Merrill Lynch Poll

Tom Burroughes

14 August 2012

Investors’ optimism about the economic outlook sharply improved in August from July, according to the monthly Bank of America Merrill Lynch poll of fund managers.

A net 15 per cent of the 173 panelists, overseeing $491 billion of assets who took part in the global survey said that the world economy will get stronger in the coming 12 months. This represents a monthly swing of 28 percentage points, the largest leap in confidence since April to May 2009, when the world emerged from the credit crunch.

In July, a net 13 per cent of respondents said the economy would weaken. The firm’s Growth Expectations Composite has risen to 49 from 37 in July.

Fears about the outlook for corporate profits have reduced since July. A net 21 per cent of the panel expects profits to deteriorate in the coming year, down from a net 38 per cent a month ago.

BoA Merrill Lynch said the renewed optimism comes amid growing expectations of that the European Central Bank will – after months of wrangling – turn on the monetary printing presses. The proportion of the panel ruling out more quantitative easing by the ECB has halved to 9 per cent, while 38 per cent expect the ECB to act during the third quarter (up from 29 per cent taking that view in July).

China’s economy is also providing optimism with a net 14 per cent of the regional panel saying China’s economy will improve – the most positive reading since November 2010.

“August’s surge in confidence seems to be more a triumph of policy projection and potential than positive economic data. As indicated by the survey, the risk is now that inaction by policy makers would lead to a negative reaction in global markets,” said Gary Baker, head of European Equities strategy at BoA Merrill Lynch Global Research.

“Investor positioning does not indicate a major inflection point in the investment cycle. Bond allocations remain high and investors are shunning the most cyclical equity sectors,” said Michael Hartnett, chief Global Equity strategist at BoA Merrill Lynch Global Research.

Europe

Although investors have shunned the eurozone for much of this year so far, they are turning more positive, the survey found. There are more investors wanting to underweight U.S. equities than eurozone equities.

A net 5 per cent of investors want to underweight eurozone equities – down from a net 18 per cent in July. A net 9 per cent wants to underweight the US, compared with a net 6 per cent looking to overweight US equities in July. Fewer investors are at the same time saying that EU sovereign debt is the largest tail risk while more are nervous about the U.S. “fiscal cliff.”

A net 13 per cent of asset allocators say they are currently underweight eurozone equities, down from a net 26 per cent in July. Fewer investors within Europe are concerned about the regional economy. A net 23 per cent of the regional panel expects the economy to weaken in the coming year, down from a net 33 per cent a month ago.

Bricks and mortar

Allocations to real estate moved into overweight territory for only the second time since 2007 and have reached their highest level since January 2007. A net 5 per cent of asset allocators are overweight the asset class after a net 3 per cent reported being underweight last month. A net 12 per cent of asset allocators are overweight equities compared with a net 3 per cent being underweight the asset class last month. The proportion of investors underweight commodities fell to a net 2 per cent from a net 13 per cent in July.

The bank’s Composite Indicator for Risk and Liquidity rose to 35 from 31 in July. Fund managers have reduced cash positions slightly to an average of 4.7 per cent of portfolios, down by 0.2 per cent. A net 3 per cent of the panel describes trading conditions as good. The same number assessed conditions as “poor” in July.