managers are still reluctant to invest in Europe and have moved further into
cash on continuing concerns over the debt crisis and global growth, according
to Bank of America Merrill Lynch (BofA Merrill).
The BofA Merrill fund manager survey for June shows
the average cash balance among global asset allocators increased to 5.3%, from 4.7%
in May. The bank says this is a contrarian buy signal for equities.
But fund managers remain underweight on equities.
On a global basis, a net 4% of asset allocators display an underweight to
stocks (compared with a net 16% overweight in May) but this rises to a net 36%
in European stocks. The reluctance to invest in Europe is despite a net 45% of
investors regarding eurozone equities as being undervalued.
Gary Baker, a European equity strategist at BofA
Merrill, said: “Eurozone equities, broadly, have never been cheaper in the eyes
of fund managers. In the history of the survey, we’ve never seen any single
region that lowly valued.”
He added that fund managers appear unsure where to
invest in Europe as well as avoiding the region in general. Global asset
allocators have moved away from energy, materials and economically sensitive
sectors and towards classic defensives, but in Europe the picture is less
clear. “At the European level, you saw much more a case of conviction
disappearing from sector positions,” Baker said.
A balance of 65% of global managers gave European
sovereign debt funding as their biggest tail risk fear in June, up from a ne t
62% in May. The American ‘fiscal cliff’ was the distant second, cited by a 17%
of respondents. Baker says that there is now a record widespread between the
positive equity weighting to America and the underweight to Europe, despite
recent doubts over the US economy’s pace of recovery.
A total of 188 panellists running a combined US$522bn
of assets participated in the BofA Merrill fund manager survey, which was conducted
between 31 May and 7 June 2012.
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