(November, 13, 2012) — The highest level of optimism in financial markets in almost two years has seen investors ploughing assets into equities, despite concern about the US Fiscal Cliff clouding the horizon, a survey has shown.
Over a third of investors responding to the monthly fund manager survey run by Bank of America Merrill Lynch said they believed the world economy would strengthen over the next 12 months. This 34% was the highest level of respondents showing such optimism since February 2011 and marked a 14 percentage point rise over the last month.
For the fifth successive month, investors have increased equity positions while selling off bonds. A net 35% reported being overweight equities, compared to a net 25% last month.
“Momentum has gathered behind the idea that we are on the cusp of a ‘great rotation’ out of bonds and into equities,” said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch Global Research. “The only missing ingredient is a resolution to the US fiscal cliff.”
More than half of respondents to the survey thought the potential hit to the US economy was the biggest tail risk. This 54% number was up from 42% thinking the same last month.
However, a sign that investors are moving to a “risk-on” approach could be seen through a greater appetite for emerging markets. A net 37% of respondents were overweight in the sector’s equities this month, up from 32% in October. Investors also indicated they would take overweight Chinese equity positions in the short-term. Figures from Asia’s largest exporter this week showed the country’s output and growth prospects had recovered from a slowdown earlier in the year.
“While sentiment within Europe remains weak, rising allocations to global stocks tell us confidence in general is improving. The jump in China optimism shows how fast sentiment can turn around,” said John Bilton, European investment strategist at Bank of America Merrill Lynch.
Japan remained off the radar for most investors, however. Historic underweight positions were maintained by the panel of respondents and almost 40% predicting the yen will depreciate the most against a basket of major currencies.