Survey Shows Investor Pessimism Shifts to Japan, US

(August 18, 2010) — Ahead of worries that the world’s largest economy may be weakening, a new survey by Bank of America Merrill Lynch Global Research shows money managers are slashing their holdings of US and Japanese equities this month, while their demand for eurozone equities is growing.

According to the study, 14% of respondents, who manage about $513 billion in total, were underweight in US equities, compared to 7% overweight in July. Additionally, 27% were underweight in Japanese equities, compared to just 7% in June. On the other hand, in August, 11% of investors were overweight in eurozone equities, compared with a net 10% underweight a month earlier – the most positive reading since October 2009. Investors were also more bullish on UK equities than they have been for more than three years, the survey stated.

Furthermore, research found that global emerging markets have increased in popularity, as concerns about a weakening of the Chinese economy have subsided. The August survey showed 19% expected the Chinese economy to weaken over the next year, down 20 percentage points from July. This improved outlook was supported by a shift toward commodities, Merrill said.

“The spotlight of investor pessimism has shifted away from China and Europe to Japan and the US,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research, in a release. “Investors clearly remain cautious, so better news on US growth and fiscal policy would be a pleasant surprise.”

Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research, added: “Investor sentiment on Europe has staged a remarkable recovery in the past few months, underpinned by greater optimism about Europe’s banks. Economic data now has to continue to support this shift.”

In all, 187 fund managers, managing a total of $513 billion, participated in the global survey from August 6 to August 12. Some 157 managers, managing $327 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS.