Mixed picture from global fund managers’ survey
Investors are less confident about the recovery than they were a month ago and the sovereign debt crisis in the eurozone continues to be a major concern, according to the BofA Merrill Lynch survey of fund managers for May released on Tuesday (17 May).
But while the May survey sees investors uncertain about global growth, they are enjoying ample liquidity keeping risk appetite high, it notes.
The number of respondents believing that the world economy will strengthen in the next 12 months has fallen to 10% from 27% in April and 58% as recently as February. Only 9% of respondents expect corporate profits to improve in the coming year.
Uncertainty is strongest in Europe where expectations turned negative in May with 8% of respondents expecting the region’s economy to weaken in the next 12 months, compared with results in April when 8% believed the economy would grow. The downturn reflects investors’ concerns with the eurozone sovereign debt crisis as the main single global risk for 36% of respondents, up from 21% a month earlier.
“Europe is hardest hit in terms of growth expectations. The debt crisis is flaring up again and is back to number one [concern],” said Patrik Schoewitz, European equity strategist at BofA Merrill Lynch Global Research.
Global asset allocators have trimmed their exposure to the eurozone for the third month in a row, according to a separate European survey.
Asked whether this reflected the fear of a eurozone country default or current concerns about Spain, Schoewitz said: “The view is that there will be no default. There might be some restructuring of the Greek debt. Spain will pull through.”
Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research, warns that the concern over Europe may be exagerated. “A risk for investors is that pessimism on Europe now looks to be overdone, particularly in light of strong recent GDP data,” said
More respondents appear to be making protective moves against a potential fall in asset values. The proportion of respondents not taking protection was down from 47% in April to 37% in May – though this data was not included in the published version of the survey.
With prospects for growth more uncertain and inflation fears receding, asset allocators have postponed their expectations of a rise in US interest rates. Fund managers have trimmed their exposure to equities and commodities, while adding slightly to cash and bond holdings. Risk aversion is more evident in strong sector rotation into more defensive areas, such as consumer staples and pharmaceuticals, and out of more volatile and growth-dependent sectors, such as energy and materials, the survey says.