It seems to be a case of ‘bring on the boom, again’ for some of the world’s biggest fund managers as sentiment turned even more positive in January.
The latest Bank of America Merrill Lynch Survey of Fund Managers for January shows that this jump in positive sentiment has helped drive investor appetite for global equities to its highest level in three and a half years.
The long-running global survey covered 199 fund managers controlling a total of $US562 billion in assets between January 7 and 13.
A net 55% of asset allocators say that they are overweight global equities, the highest reading since July 2007, just before the credit crunch broke in early August of that year and crippled the global financial system with fear.
It represents a significant increase from December when a net 40% was overweight.
At the same time, bond allocations fell. A net 54% is underweight bonds, up from a net 47% a month ago.
Behind this rise is growing confidence in the global economy and corporate profits.
A net 55% of investors expect the world’s economy to strengthen in 2011 with 39% predicting “above trend” growth in the coming 12 months, the highest reading since the question was introduced in February 2008.
A net 57% believes that corporate profits will rise 10% or more this year, up from 45% in December.
A growing majority expects global inflation to increase this year – a net 72% in January, up from a net 48% two months ago.
But higher inflation is not seen necessarily as a threat. A net 42% of investors believe monetary policy is “too stimulative,” that’s lower than in November.
“The combination of growth optimism and a benign view towards higher inflation provide a potent case for equity investment,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research. “Investors believe monetary easing is working; in the absence of either tighter policy or weaker data, equity enthusiasm looks contagious,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.
Growing belief in American shares, already evident in December’s survey, has firmed significantly this month.
A net 27% of the global panel is now overweight US equities, the highest reading since November 2008 and surpassing December’s level of a net 16%.
A net 15% of the panel would prefer to be overweight US shares than any other region, double the 7% reported in December.
A net 43% expects the US dollar to appreciate versus the euro or the yen on a trade-weighted basis, up sharply from just 14% in November.
Japan has also benefited from improved sentiment with big global investors now overweight Japanese equities for the first time since May 2010 and for only the fifth month in 42 months.
A net 5% of the global panel is overweight Japanese equities, compared with a net 29% being underweight in November, a significant turnaround.
Domestic Japanese sentiment is strengthening.
A net 57 % of respondents to the regional Japanese survey expect the country’s economy to improve this year, up from a net 42% in December. Sentiment has improved steadily since September last year when there was an even split between those predicting a stronger economy and those expecting weakness.
Support from global investors for emerging markets remains high but has continued to decline.
A net 43% of asset allocators are overweight GEM equities, but this is lower than the net 56% two months ago.
And while a net 20% of investors want to overweight GEM equities more than any other region, this is down from a net 31% in December.
Part of the reason for the fall is a rising belief that China’s economic prospects has eroded.
A net 19% of respondents to the regional survey say that China’s economy will weaken this year. Two months ago, a net 16% forecast a stronger Chinese economy.
Commodities investment, a bellwether for emerging market optimism, has fallen with a net 16% of asset allocators overweight the asset class compared with a net 22% a month ago. This fall comes despite the fact that commodities traditionally benefit when investors expect higher inflation.
And Europe continues to attract more positive ratings.
The proportion of the panel predicting a stronger European economy has leapt to a net 44% from a net 26% last month.
The survey shows that an increasing number believe European companies will deliver improved earnings in 2011.
This optimism comes as global concerns about EU sovereign debt fund risk have fallen away from the highs of December.
But this optimism was tempered.
Nearly half of European fund managers expected the region to grow in 2011, but global investors still shied away from the region.
Investors were 9% underweight this month, down from a 15% overweight position two months ago.
