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Expectations Grow of Further ECB Easing by Year-end
A growing majority of global investors would like to see more stimulative fiscal policies from governments around the world, amid resurgent fears about the Greek economy, according to the BofA Merrill Lynch Survey of Fund Managers for May.
The proportion of global investors saying global fiscal policy is “too restrictive” has more than doubled to a net 23 percent from a net 11 percent in April. The survey took place from May 4 to May 10, after elections in France and Greece. Nearly two-thirds of investors are concerned that Greece will be the source of a negative surprise this year, up sharply from 48 percent in April.
Fewer investors are convinced that current monetary policy offers enough stimulus. The number of respondents saying global monetary policy is “too stimulative” fell to a net 14 percent from a net 25 percent. Furthermore, expectations of additional stimulus from the European Central Bank (ECB) are rising. In this month’s survey, 60 percent of respondents expect the ECB to engage in more direct large-scale quantitative easing by the end of 2012 – up from 51 percent taking that view in April.
Investors are looking for greater stimulus as expectations of economic growth have fallen further and as concerns about inflation have eased significantly. Only a net 15 percent of the panel expects the global economy to strengthen in the year ahead, down from a net 28 percent in February. The proportion of investors predicting inflation to rise in the coming year fell to a net 2 percent from a net 21 percent in April.
“Investors have eradicated hopes of growth and inflation that had built up in the early months of the year – and they are looking to policy makers for stimulus,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research. “The risk to global growth comes from a change of view on China. Our April and May surveys show investors are increasingly bullish on China’s growth prospects,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.
“Sell in May” - risk-off approach further embedded
Investors have extended the “risk-off” mode that they switched into last month. BofA Merrill Lynch’s Risk and Liquidity Composite Indicator has fallen further to 36 points – further below its historical average of 40 points. A net 35 percent of the panel says that they are taking lower than normal risks – up from a net 21 percent a month ago.
Asset allocators have extended positions in cash and bonds while reducing exposure to equities. A net 28 percent are overweight cash, up from a net 24 percent in April. While a net 48 percent were underweight bonds a month ago, that figure has fallen to a net 33 percent. The proportion of asset allocators overweight equities shrank to a net 16 percent from a net 28 percent.
Appetite for commodities fell back to its lowest level in seven months. A net 2 percent of the panel is now underweight commodities compared with a net 8 percent overweight the asset class in April. Weakening demand for commodities can an indicator of lower global growth and lower inflation.
Enthusiasm for U.S. cools; China comeback continues
Appetite for U.S. equities has managed to withstand the second month of “risk off.” However fewer investors are rushing into the U.S. market, and the survey indicates demand could fall in the months ahead.
The proportion of asset allocators overweight U.S. equities fell very slightly to a net 26 percent from a net 27 percent. Looking ahead, however, the proportion of investors who would most like to overweight U.S. equities in the coming 12 months fell to a net 6 percent from a net 18 percent a month ago. Investors within the U.S. responding to the Regional Fund Manager Survey are optimistic about the economy but have concerns over profits.
At the same time hopes for China have continued to rise. A net 10 percent of the panel expects a stronger Chinese economy in the next 12 months, up from a net 4 percent a month ago. A net 32 percent of global investors say Global Emerging Markets is the region they most want to overweight, up from a net 24 percent.
Euro currency fears emerge
With Greece and risks surrounding eurozone sovereign bonds at the forefront of investors’ minds again, respondents are reducing exposure to the euro. A net 32 percent of investors are underweight the euro (unhedged), a significant increase from a net 20 percent in April and March. Looking ahead, a net 49 percent of global investors say that the euro is the currency they most expect to depreciate over the next year, up from a net 32 percent last month.
Survey of Fund Managers
An overall total of 234 panelists with US$526 billion of assets under management participated in the survey from 4 to 10 May. A total of 173 managers, managing US$526 billion, participated in the global survey. A total of 125 managers, managing US$270 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.
BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers more than 3,300 stocks and 880 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2011 by Institutional Investor; No. 1 in the 2012 Institutional Investor All-Asia survey for the second consecutive year; and No. 2 in the 2012 Institutional Investor All-Europe and All-Japan surveys. The group was also named No. 2 in the inaugural Institutional Investor Emerging Markets Equity and Fixed Income survey, covering Emerging Europe, Middle East and Africa; No. 2 in the 2011 All-Latin America and All-America Equity team surveys; and No. 3 in the 2011 Institutional Investor All-America Fixed Income and All-Brazil Research team surveys.
Additionally, the group was named No. 2 in the Wall Street Journal Best on the Street 2012 Analysts Survey. The group was also the winner of the Emerging Markets magazine’s EM Research Global Award for 2010 and 2011.
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