Surveys
Investors Less Bearish As Economic Growth Outlook Brightens – BofAML Poll
Investors may be more optimistic this month but they still fear for the future of the European Union, according to a global fund manager poll.
Investors’ cash levels dropped from a 15-year high of 5.8 per cent last month to 5.4 per cent in August, according to the latest fund manager survey by BofA Merrill Lynch.
The less cautious approach comes as global growth expectations have rebounded, with a net 23 per cent of investors expecting the global economy to improve in the next year. BofA Merrill Lynch highlighted central banks’ creation of a low-rate environment as a key factor driving fresh optimism as well as fund managers’ preference for deflation assets over inflation assets.
Only 13 per cent of respondents expect the Bank of Japan or European Central Bank's negative interest rate policies to end within the next year. Meanwhile, a record net 48 per cent of investors think global fiscal policy is too restrictive.
Despite the fall in bearishness, geopolitics is still seen as the largest risk to financial market stability in August, according to the survey. With little clarity shed over the timeline of the UK’s divorce from the European Union, investors identified EU disintegration as the biggest tail risk, followed by renewed China devaluation and US inflation.
Allocation to US equities is the highest it has been since January 2015 at a net 11 per cent overweight, while allocation to eurozone equities remains low at a net 1 per cent overweight. Allocation to UK equities improved from a net 27 per cent underweight in July to a net 21 per cent underweight this month.
While allocation to Japanese equities has improved to a net 1 per cent underweight from a net 7 per cent underweight last month, allocation preference for the next 12 months has worsened to -8 per cent from -3 per cent, with only the UK behind Japan.
“Investors are less bearish, but sentiment has yet to shift from ‘fear’ to ‘greed’. As such, we expect stock prices to rise further until bonds throw another tantrum,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
"Eurozone equity allocations are broadly unchanged amid concerns of EU disintegration and UK stocks are still the least-preferred. Within Europe, we prefer UK large-caps from both a positioning and macro perspective, as they benefit from weaker GDP, lower yields and less European exposure," added European equity quantitative strategist Manish Kabra.
