A new Chinese New Year and it seems there is fresh optimism from some of the world’s big fund managers about China’s growth prospects.
The latest Merrill Lynch Survey of Fund Managers (this one is for February) shows a marked improvement in economic sentiment globally as a result of the rise in hopes for China.
As a result of this and less pessimism about the global economy, commodities seem to be coming back into the radar of some big global investors.
Helping no doubt with the improved standing of China is the solid rebound in its stockmarket so far this year: it’s up around 22% so far, while the MSCI global Index is off 10%.It was up 31% at the close on Monday.
The market lost 7.5% Tuesday and Wednesday before it rose by around 0.8% on Thursday.
But according to Bloomberg reports, some Chinese brokers wonder if some of the surge in bank lending and Government stimulus funds are being diverted into the market and powering the rebound.
The Survey shows that investors are at their most hopeful about the year 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.
And this week we had more evidence of that with Japan’s continuing slide, another 2% drop in industrial production in America (now down 10% over the past year), new housing starts hitting yet another all time low and the Fed cutting its forecasts for the US economy for this year.
No growth whatsoever, its all negative, but hopes of an upturn emerging later in the year.
Eastern Europe is starting to worry investors and banks because of a possible implosion as debt burdens rise.
But despite these fears, the Merrill Lynch survey is relatively optimistic
"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 January."
"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," said Michael Hartnett, chief Global Emerging Markets Equity strategist at Banc of America Securities-Merrill Lynch Research.
The survey showed that commodities have enjoyed the sharpest pickup 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 December.
"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.’
The US is moving back into favour while Japan is on the nose.
"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 United States 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 pickup 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 macroeconomic 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."
"A total of 212 fund managers, managing a total of U.S. $599 billion, participated in the global survey from February 6 to February 12. A total of 177 managers, managing U.S. $372 billion, participated in the regional surveys. "
