Fund Manager Survey Finds Gloom Lifting Over Global Growth Prospects

Global investors have started 2012 with a reawakened sense of optimism towards the global economy and greater appetite for risk, according to the BofA Merrill Lynch Survey of Fund Managers for January. The global survey of 214 institutional investors shows far fewer predicting a global slowdown. Only a net 3% believe the world economy will weaken in the coming 12 months down from a net 27% in December – the biggest one-month improvement in the growth outlook since May 2009.

Many investors are showing more appetite to take risk. BofA Merrill Lynch’s Composite Risk and Liquidity Indicator is the highest since July 2011, before the sovereign debt crisis fully emerged. Cash levels have fallen to their lowest levels since July 2011. Cash now makes up, on average, 4.4% of a portfolio, down from 4.9% in December. The proportion of investors taking lower than normal levels of risk has improved to a net 33% of the panel, compared to a net 42% in December.

One concern that investors have highlighted is geopolitical risk. The proportion of respondents viewing geopolitical risk as “above normal” has jumped to 69% from 48% last month. This has, in the past, been correlated with a spike in the oil price.

“Investors are tip-toeing rather than hurtling toward higher risk exposure; the US market and high quality cyclical sectors, such as energy and tech, have been the main beneficiaries of lower cash holdings,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.

“Despite improvement in global and European growth expectations asset allocators remain deeply sceptical towards European equities, especially banks,” said Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research.

Corporate Outlook Improves and Demands for Investment Rise

Fears of a global corporate profit slowdown still exist but have receded in the past month. While a net 21% of the panel still expects profits worldwide to deteriorate in 2012, that’s sharply lower than the net 41% taking the view in December. The proportion of the panel expecting corporate earnings growth to be under 10% has fallen to a net 42% from a net 60%.

Investors are returning to the view that corporate need to invest more. A net 55% of respondents say that corporates are underinvesting – the highest reading in 10 months. A net 37% of the panel believes that corporates are “underleveraged”, up from a net 31% in December.

Gulf Between US and Europe Remains

The gulf between the US and Europe as a preferred investment location remains, although some of the more wildly negative views towards Europe have eased. A net 56% of the global panel believes that the outlook for corporate profits is more favourable in the US than any other region, up from a net 50% in December. A net 70% say the profit outlook for the eurozone is the least favourable of all regions, compared with a net 72% a month ago.

Asset allocators have further increased their exposure to US equities. A net 28% are overweight US equities, up from a net 23% in December. A net 31% remain underweight eurozone equities, an improvement from a net 35% a month ago but the second-worst reading on record.


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