(August 13, 2013) — Investors have been advised to buy assets that were discarded in the recent sell-off triggered by the Fed’s veiled suggestions of a quantitative easing (QE) taper.
These assets, classed as “crash test dummies” by analysts at Bank of America Merrill Lynch, are undervalued at the moment—but investors will have to move quickly.
“In our view, the summer decline in bonds, emerging markets and gold (the first of a likely series of ‘QE crashes’) has created short-term trading buy opportunities in these now very unloved assets; in contrast, strong US dollar-plays (US/UK stocks, banks, discretionary) now appear relatively over-owned and likely underperformers near-term.”
A monthly survey carried out by the bank on a range of international asset allocators found emerging markets would remain unloved for some time longer, however. A net 19% of respondents to the survey said they were underweight in emerging market equities, marking the lowest take up of these regional assets since November 2001.
Elsewhere, investors felt more upbeat with the highest proportion in four years believing the world economy would pick up over the next 12 months.
Investors were bullish on Europe, with a net 88%—double the amount seen in July—believing the region was in line for strengthening in the year ahead, and were desperate for growth. A net 64% of investors said companies were under-investing and demanded more capital expenditure –the highest number since 2006—rather than higher dividends or paying down debt.
As the “Great Rotation” continues, investors reported a 28-month low in their bond allocation, compared with a six-month high in equity holdings. The UK enjoyed the best confidence from investors who reported the highest allocation to its stock markets since December 2002—analysts noted that it was, in fact, the first overweight position since February 2003.
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