In February big global investors abandoned their reserve and went for risk, only to pull back in early March, before the March 11 disasters in Japan.
Come April, the impact of those crises and the continuing nuclear problems at Fukushima have been put aside as some of the world’s biggest fund managers say they again want more risk.
That seems to be the upshot of the April survey of big global and regional funds managers by Bank of America/Merrill Lynch.
And the problems in Japan have not put them off Asia, with emerging markets back in favour as well.
But international managers have cut their exposure to Japan as a result of the quake, tsunami and nuclear crisis.
Four weeks after the earthquake and tsunami in the northeast of Japan, domestic and international investors have taken sharply negative views on the country.
The survey shows that within Japan, belief in economic growth has come to a halt – respondents are evenly split on whether the economy will grow or slow in the next 12 months.
International investors have reduced their exposure to the country’s shares.
A net 18% of asset allocators are underweight Japanese equities this month, compared with a net 8% overweight in March.
One in six respondents is "aggressively underweight" Japan, though one third of the panel remains neutral, the survey shows.
The outlook points to further selling of Japanese equities, however.
A net 16 % of the panel says that Japan is the region in which they are most likely to take underweight positions.
But overall, the monthly report indicates investors have trimmed cash holdings and lifted equity ownership as real interest rates remain low.
A total of 282 managers with $US757 billion in assets under management participated in the survey, taken from April 1 to April 7.
It said emerging-markets stocks saw the greatest increase in equity positions.
“Average cash balances have fallen in April to 3.7% of portfolios, down from 4.1% in March.
“A net 11% of respondents are overweight cash, down from a net 18% last month. A net 50% of asset allocators are overweight equities, up from a net 45% one month ago,” the survey said.
22% of the managers polled were overweight emerging-markets stocks, compared with none in March, a big turnaround in sentiment considering China raised interest rates during the survey.
Regarding asset classes, 24% of fund managers said they are now overweight commodities. That’s up three percentage points on March.
“Investors are putting cash to work while displaying concerns about the outlook.
"The proportion of the panel believing the world economy will strengthen in the next 12 months has fallen to a net 27% from a net 58% in February,” the report said.
But a negative was the growing concern about corporate profits, as the survey showed that only a net 19% of respondents believe corporate profits will improve in the coming year, compared with a net 32% in March.
“Central banks have succeeded in reinflating economies, but investors are split on whether they have stimulated real economic growth,” Gary Baker, head of European equities strategy at Bank of America Merrill Lynch Global Research, said in the report.
And Michael Hartnett, the firm’s chief global equity strategist, said that “investors are reluctantly overweight equities. The combination of zero [percent] rates and rising inflation makes them fearful of bonds and cash”.
On the world, 42% of the panel believes that the world economy faces below-trend growth and above-trend inflation.
At the same time, a significant number, 29%, expects above-trend growth and above-trend inflation.
Energy, frequently used by investors to hedge against inflation, has become the number one global equity sector this month.
Other sector allocations indicate a preference for defensive sectors such as pharmaceuticals.
Deepening fears about the future of China’s economy have failed to quell the rebound in positive sentiment towards emerging market equities, especially in Asia.
A net 25% of respondents to the regional survey expect China’s economy to weaken in the coming year, up from a net 15% in March.
Still, sentiment towards the region’s equities has improved. A net 22% of the panel says that emerging markets is the region that they most want to take an overweight position in the future, the highest reading of all regions this month.
Behind the optimism over emerging market equities is belief in the profit outlook.
A net 28% of respondents believe that EM corporates have the most attractive profit outlook.
Among global emerging markets investors, Asia is the most preferred market for 58% of those surveyed, while Latin America is the least preferred.
Investors are looking favourably towards the US with a net 30% of asset allocators overweight American shares this month, up from a net 23% in March. A net 48% believes that the outlook for US corporate profits is stronger than any other region.
European investors are also mirroring the global trend of increasing risk in the face of lower expectations.
Concern about the future is particularly strong among European investors.
Only a net 8% of the European panel believes the region’s economy will strengthen in the next 12 months, down sharply from a net 32% in March.
However, cash positions fell in April to an average 3.3% of portfolios, down from 3.7% in March.
So Portugal’s request for a bailout and the election loss in Germany for Chancellor Angela Mer
