(August 14, 2012) — Investor confidence has taken its biggest monthly leap in three years as regulators and politicians have made the right noises, but this could all change if central banks do not fulfil their promises.
Allocations to equities, real estate and commodities have jumped this month since investors flocked to cash in July, according to a monthly survey by Bank of America Merrill Lynch.
A net 15% of investors responding to the survey said they believed the world economy would improve over the next 12 months. This represented a 28 percentage point swing and marked the most acute turnaround in confidence since May 2009, when the world emerged from the credit crunch, the bank said.
“August’s surge in confidence seems to be more a triumph of policy projection and potential than positive economic data,” said Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research. “As indicated by the survey, the risk is now that inaction by policy makers would lead to a negative reaction in global markets.”
Respondents indicated they expected the European Central Bank would step in to help ease pressures in the Eurozone. This followed the bank’s president, Mario Draghi, announcing last month that the institution would do “whatever it takes” to bring financial stability back to the region. Critics have wondered when the bank is likely to take such action, however.
This confidence of resurgence in Europe was shown by investors either allocating more or expressing a desire to European stocks. Instead, the United States is proving a concern for investors, with more of them citing the nation’s fiscal cliff as the largest tail risk rather than the European debt crisis.
Bullish sentiment over real estate this month has seen the largest allocation to the asset class since January 2007, BoA Merrill Lynch said. Commodities saw positive sentiment with the percentage of investors underweight the asset class dropping from a net 13% to 2%.