(October 18, 2013) — Investors’ optimism about a global economic recovery is faltering but European equities and emerging markets are finding renewed favour, according to a survey.
Only 54% of investors responding to a monthly Bank of America Merrill Lynch survey believed the global recovery will strengthen, a 15% drop from last month. Almost three-quarters projected economic growth to stay “below trend” in the coming year, an increase of 10% from September.
The survey of more than 200 global managers with $643 billion of assets under management found the negative sentiment stemmed from the tail risk of the US economy.
“Events in Washington clearly caused investors to shift back towards their benchmarks, but asset price gains can still be driven by high cash levels,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch, said.
Managers expected similar results for corporate profits, the survey found. Only 28% of those surveyed said they expected global corporate profits to improve over the next 12 months.
Investors’ equity holdings have dropped—in correlation to the general negative outlook—with a growing shift back to fixed income.
Only half of those surveyed were overweight equities, a 20% drop from last month, according to the survey. US equities took the biggest hit, with no asset allocators being overweight in the sector.
European equities allocations, on the contrary, reached a six-year high of 46% of overweight investors. European corporate profits are also experiencing great optimism with 10% of those surveyed choosing the Eurozone as the “most favorable outlook.”
“Strong flows into Europe would call for a touch of near-term caution, but solid macro momentum in the region suggests that any dips in EU equity markets would be enthusiastically bought,” John Bilton, a European investment strategist at the bank, said.
BoA Merrill Lynch found favor for Japanese equities also resisting the negative global trend, recording a second successive month of improvement.
The report concluded emerging markets saw a relative upturn as well. Investors have largely increased allocations into the region—only 10% was underweight in October and 26% have been overweight.
However, only 5% of managers expected the Chinese economy to strengthen in the next year, pointing to the industry’s discrepancy in emerging markets outlook.
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