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Fund managers give up on prospect for global growth‏

20 Jun

Fears of a global economic slowdown have come  sharply back into focus, and expectations of decisive action by policy makers  have grown, according to the BofA Merrill Lynch Survey of Fund  Managers for June.

A net 11% of the global panel believes that the  global economy will deteriorate in the coming 12 months – the weakest reading  since      December 2011.

Last month, a net 15% believed the economy  would strengthen and the negative swing of 26%age points is the biggest since  July-August 2011 as the sovereign crisis built. The outlook for  corporate profits has suffered a similarly negative swing. A net 19% of the  panel believes that corporate profits will fall in the coming 12 months. Last  month, a net 1% predicted improving corporate profits.

Investors have adopted aggressively “risk off” positions. Average cash balances are at their highest level since the depth of  the credit crisis in January 2009 at 5.3% of portfolios, up from  4.7% in May. The Risk & Liquidity Composite Indicator fell to 30 points, versus  an average of 40.

 

Asset allocators have moved to a net underweight position in  global equities and increased bond allocations. Support for policy stimulus has grown. The  majority of the panel now believes that global monetary policy is “too  restrictive.” A net 6% take that view, the highest since December 2008. A net 15% said policy was “too stimulative” in May. The proportion of global  investors saying global fiscal policy is “too restrictive” has continued to rise  to a net 28% from a net 23% in May. “Investors have taken extreme ‘risk off’ positions and equities are oversold, but we have yet to see full capitulation.

Low allocations in      Europe are in line  with perceptions of growing risk levels in the Eurozone,” said Gary  Baker, head of European Equities strategy at BofA  Merrill Lynch Global Research. “Hopes expressed last month of a policy  response have now become expectations. Markets are keenly anticipating decisive  action from key policy meetings in June,” said Michael Hartnett,  chief Global Equity strategist at BofA Merrill Lynch Global  Research.

Global equity under-valuations match  all-time low
Global equities are at their most undervalued  since August 2011. A net 48% of the global panel believes global  equities are undervalued, matching the lowest level since the survey began.The  reading is up from a net 35% in May and a net 22% in April. At the same time, a  net 83% of the panel says that bonds are overvalued – also an all-time high and  up from a net 74% a month ago.The view is even more concentrated in  Europe. A net 45% of the global panel sees  Europe as the most undervalued region – an all-time high reading and  up from 27% in May. Asset allocators moved out of global equities  with a net 4% underweight the asset class, compared with a net 16% overweight  equities last month. They reduced their underweight position in bonds to a net  23%, down from a net 33% in May.Global investors have reached their closest  position to being equal weight equities and bonds since November 2011. Fears resurge of Chinese hard landing
Last month’s growing optimism about China’s  economy has halted in June’s survey. The panel is equally split about whether  China’s economy will get stronger or weaker in the year ahead; last month, a net  10% predicted it would strengthen. Significantly, 16% of respondents now believe  China’s economy faces a “hard landing” – up from 9% in May. Broadly, sentiment towards emerging markets has  softened. A net 17% of global asset allocators are overweight Global Emerging  Market equities – down from a net 34% in May.Commodities have also lost favor.  A net 8% of the panel is underweight the asset class, the lowest reading since  February 2009. Allocation by global asset allocators to U.S.  equities improved with a net 31% overweight U.S. stocks, up five%age points  month-on-month. In contrast, domestic investors have turned bearish. A net 36%  of U.S. respondents to the Regional Survey expect the U.S. economy to  deteriorate in the coming 12 months.
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