Given the rising level of financial stress and uncertainty coming from Europe (and to a lesser extent China) in recent weeks, it probably comes as no real surprise that big global and regional investors have gone right off both areas as investment destinations.
But what should surprise, is the speed of the change in sentiment.
In fact both Europe and China are seen as areas where there are more problems than potential gains; earnings, financial certainty and currency concerns dominate, plus the overarching fear about the future stability of the eurozone and the 27 economies of the EU.
According to the latest Bank of America Merrill Lynch fund manager survey, released earlier this week, America is now first choice for earnings, currency and growth.
And Europe has become the worst, a ‘no go zone’.
And that has seen yields on US Government securities down sharply since the troubles really kicked in around the middle of April.
That’s when world markets peaked in the long rally that started in March 2009.
The yield on 10 year bonds is the best indicator and they have fallen from 3.54% to a low of 3.26% overnight as billions of dollars have flooded into the US.
Even Wall Street isn’t steady, and whatever buying these big fund managers are doing, is happening on the downside.
The fall overnight was nasty, especially in the last half hour. Wall Street is now down more than 10% and in a correction phase.
They are buying into a falling market (although the Flash Crash on May 6 would have terrified many of them) which should mean cheap entry prices and good gains when and if the market rebounds.
There is of course an irony here. With its record budget deficit (over $US1.4 trillion), huge debt (well over $US12 trillion) and still fractured economy and political system, America is no real safe haven" in an economic sense.
But it is, with Europe, Japan and the UK are highly indebted, sluggish economies facing a very weak growth and outlook.
And the US dollar is "safe" compared to the euro and even the still strong yen.
It is in fact the first and last stop for nervous investors, which says something about the state of the rest of the world at the moment.
This latest survey was conducted between May 7 and May 13, the week of the 750 billion euro eurozone rescue package, backed by the European Central Bank’s market support for sovereign and private debt.
The rescue package didn’t convince them.
A total of 202 fund managers, managing a total of $US530 billion, participated in the global survey from May 7 to May 13, while a further 170 managers, managing US$US341 billion, participated in the regional surveys.
The survey’s risk indicator had its largest one-month fall since 2003.
A net 33% of the managers surveyed believe that the outlook for corporate profits is most favorable in the US while a net 41% say that the outlook is least favourable in the eurozone.
The survey’s authors say that spread of 74 percentage points was the widest since July 2003.
Average fund cash balances rose to 4.3% of portfolios from 3.5% in April, while the proportion of investors overweight global equities fell sharply to a net 30% from a net 52% in April.
That is significant because after the falls of this month, April looks to have been the most recent peak in the markets, from equities, to currencies and most industrial commodities. (But not gold and oil.)
The number of funds overweight US shares rose in April.
A net 66% of the funds surveyed now think the US dollar will appreciate the most of the reserve currencies.
Importantly, the gulf in confidence between US and European corporate profit has reached a seven-year high.
The number of US-based investors expecting double-digit earnings growth has risen to a net 54% from 50% in April.
"May’s survey highlights a flight to the U.S., driven by the uncertainty in Europe and underscores a positive U.S. growth outlook," said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research.
"The survey shows that investors have capitulated on Europe, beaten down by sovereign debt concerns and faltering growth expectations," said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.
The survey’s risk and liquidity index based on investor risk appetite, investment outlook and cash levels, experienced its largest one-month fall since 2003. The proportion of asset allocators overweight global equities fell from 52% last month to 30%.
The number of investors who believed the global economy would strengthen in the next 12 months fell from a net 61% to a net 42%, reflecting growing concerns about the potential impact of the eurozone debt crisis on global growth.
Positive sentiment towards emerging market equities dropped to its lowest level since early 2009 and fund managers with high exposure to global emerging market equities fell from 31% in April to 19%.
Global fund managers were more bearish on China than in any month since February 2009, with 29% of investors expecting the Chinese economy to weaken in the next 12 months compared with only 5% predicting a stronger economy.
Perhaps some are talking from painful experience about China as the Shanghai Composite index has dropped by almost 10% since the beginning of May, leaving the Chinese market down more than 22% since last November.
Patrick Schowitz, equity strategist at BofA, said in the report that “Investors are worried about the Chinese economy in the context of monetary tightening and about the potential knock-on effects on to other emerging-market countries”.
But the growing pessimism about Europe is the big trend, as it should really be, given the steady worsenin
