Hopes higher than at any point since start of credit crunch
NEW YORK and LONDON, Feb. 18 /CNW/ -- Fresh optimism over China's growth
prospects has led to a marked improvement in economic sentiment globally,
according to the Merrill Lynch Survey of Fund Managers for February.
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Investors are at their most hopeful about the year ahead since the credit
crunch took hold in July 2007, with the number who forecast a worsening
economy in the 12 months ahead falling to a net -6 percent. This compares with
a net -24 percent in January. The majority recognises, however, that the world
economy is in recession.
Fears of a prolonged slowdown in China appear to be fading. The number of
investors who predict lower growth in China over the coming 12 months has
fallen sharply, to a net 21 percent in February from a net 70 percent in
Similarly, severe pessimism about the outlook for corporate earnings has
started to ease. A net 43 percent of respondents expect to see deteriorating
profits over the coming year, significantly lower than the 63 percent who held
that view in December. A net 49 percent of the panel predicts inflation will
fall over the coming 12 months, compared with 64 percent in January and 82
percent in December.
"Fund manager expectations for Chinese economic growth rose dramatically
to their highest levels since 2007, and faint global decoupling hopes now
reside solely with China," says Michael Hartnett, chief Global Emerging
Markets Equity strategist at Banc of America Securities-Merrill Lynch
Commodities coming back as equity allocations shift into cyclicals
Commodities have enjoyed the sharpest pick-up in terms of changes to
asset allocations in the past two months. Investors hold a net 15 percent
underweight position in commodities, down from a net 32 percent underweight in
Bond weightings were trimmed while equity allocations fell back to a net
34 percent underweight - the same position as in December. Investors have been
pruning back their allocations to traditional defensive sectors and moving
into more cyclical sectors.
Weightings fell in Telecoms, Insurance, Staples and Utilities. At the
same time investors increased positions in Technology, Energy, Materials,
Industrials and Discretionary Spending.
"Higher risk appetite, rising commodity sentiment and a strong valuation
case could encourage further investment in energy and materials sectors. We
see this as best played out through sterling-denominated assets," said Gary
Baker, Banc of America Securities-Merrill Lynch head of EMEA Equity Strategy.
U.S. in favour while Japan allocations fall
Appetite for U.S. equities has been reawakened in February, possibly
boosted by poor market performance in January. The net overweight position in
U.S. equities has risen to 15 percent this month, up from 7 percent one month
ago. The U.S. benefits from having the best profits outlook, and 31 percent of
respondents want to overweight U.S. equities in the next 12 months.
At the same time allocations to Japan have fallen starkly with investors
who hold a net underweight position of 26 percent, compared to 15 percent in
January. Traditionally, Japanese equities would benefit from a broad pick-up
in sentiment. Japan also suffers from having an overvalued major currency,
according to the survey.
For the first time, respondents view the yen as more overvalued than the
euro. Pessimism over the euro has broadly moderated, while the region's
macro-economic outlook is somewhat more favorable.
"Eurozone growth expectations picked up to the highest level in 12 months
in February," said Baker. "But in contrast with the global picture, the number
of European portfolio managers overweight cash spiked to the highest level
since October 2001."
Survey of Fund Managers
A total of 212 fund managers, managing a total of US$599 billion,
participated in the global survey from 6 February to 12 February. A total of
177 managers, managing US$372 billion, participated in the regional surveys.
The survey was conducted by Banc of America Securities-Merrill Lynch Research
with the help of market research company Taylor Nelson Sofres (TNS). Through
its international network in more than 50 countries, TNS provides market
information services in over 80 countries to national and multi-national
organizations. It is ranked as the fourth-largest market information group in
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