Six week old, the current boomlet looks like wanting to continue for a while longer
The US reporting season might change that, so might a series of economic forecasts and figures, and the release of bank stress test data in the US on May 4, but so far as big fund managers are concerned, risk is back on the investment menu.
Or, as one market analyst said at the weekend ‘to some its 2006 all over and the credit crunch didn’t happen’.
The April monthly survey of global fund managers by Banc of America/Merrill Lynch shows the return of risk quite clear.
It also shows once again that China is the big hope for fund managers. China’s importance has been high in the survey now for the first four months of 2009.
According to the results of the survey big fund managers’ appetite for risk has jumped.
"Optimism about growth has reached its highest level since early 2004. A net 26 percent of respondents say the global economy will strengthen in the next 12 months, up sharply from negative 24 percent in January, ML reported at the weekend.
"In contrast to March, investors are starting to act on the improving outlook and are unwinding previously entrenched, bearish positions.
"A vital difference is that investor pessimism on bank stocks has started to recede.
"The net percentage of respondents underweight banks swung significantly in April to a net 26 percent from 48 percent in March.
"The net percentage of investors overweight cash fell to 28 percent from 41 percent in March.
"Just 17 percent of respondents are underweight equities compared with 41 percent in March. Asset allocators are turning towards cyclical sectors, such as technology."
So, increased confidence, but still some caution
According to Gary Baker, co-head of international investment strategy at Banc of America Securities-Merrill Lynch Research “Improving sentiment on financials has decisively removed the log jam on sector rotation.
"This is enabling broader optimism about growth to feed into greater risk appetite and prompting a march out of defensives into cyclicals.”
"The April FMS prints the most optimistic reading on global growth since 2004," he said.
"A net +24% of investors believe the global economy will strengthen over the next 12 months. China remains the principal catalyst but growth optimism has now broadened out to all regions, including previous laggards Europe and Japan.
"Our risk appetite indicator climbed to a 12-month high.
"Asset allocators are less pessimistic on equities, sharply cutting their underweight to 17% from 41% in March.
"Overweights in bonds were trimmed. Cash overweights fell to net 24%, the lowest since late-2007, lowering average cash balances to 4.9% from 5.2%.
"Even hedge funds raised net equity exposure to an 8-month high of 25%."
"No major change in currency views this month with GEM and sterling seen as undervalued and Euro and Yen firmly overvalued," Mr Baker said.
"The improvement in growth expectations seen since December continues with our economic & profit expectations composite surging to 54 from 43 in March.
"At +26%, fund managers’ optimism on the global economy now stands at a 5-year high. The surge in optimism on Chinese growth prospects once again led the way in boosting optimism."
And in the commentary on the survey, Michael Hartnett, co-head of international investment strategy at Banc of America Securities-Merrill Lynch Research, said: “The consensus has shifted from apocalyptically bearish to reluctantly bullish.
"But it’s important to note that asset allocators are still underweight equities, indicating they have yet to fully embrace the idea of a new bull market.
"China continues to be a beacon of hope for the global economy.
"Portfolio managers are more optimistic on Chinese growth that at any point since 2003.
"A net 26 percent of respondents believe Chinese economic growth will accelerate over the next 12 months. As recently as November, 85 percent expected it to decelerate.
“Investors looking to play the global recovery are using China and emerging markets, rather than Europe or Japan, to do so," said Hartnett.
"Thanks largely to China’s influence, global emerging markets have been the prime beneficiary of improving sentiment towards equities with a net 26 percent of asset allocators saying they are overweight the asset class, up from just 4 percent in March.
"Commodities, integral to emerging market growth, are increasing in popularity.
"A net 4 percent of asset allocators are overweight the asset class — the first net overweight reading since August of last year.
"After emerging markets, the U.S. is investors’ other preferred location.
"A net 18 percent of respondents say that they would most like to overweight U.S. equities with a 12 month view.
"Europe and Japan are the least favored with a net 18 percent who say they would most like to underweight their equity markets.
"Sector allocations mark end of extreme positioning April’s survey shows strong evidence that investors have started to emerge from the recessionary rut that led them to take extreme asset allocations for protection.
"In addition to reducing underweight positions in banks, asset allocators have begun moving back towards traditional cyclical sectors.
"Technology has become the most popular sector, with a net 27 percent of respondents overweight.
"Pharmaceutic
