BofA survey highlights monetary policy divergence

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Sentiment towards Europe has picked up in the wake of recent monetary policy easing by the ECB, while investors are increasingly sure of a rate hike by the Fed in spring 2015, according to the BofA Merrill Lynch Fund Manager Survey for September.

Belief in Europe’s stocks has started to recover after the heavily negative sentiment expressed in August’s survey. In the wake of the decision to lower rates to close to zero, asset allocators have increased exposure to eurozone equities.

A net 18% are overweight the region, up from a net 13% a month ago. Europe is also the region that a net 11% of investors most want to overweight in the coming 12 months. Last month, a net 4% wanted to underweight Europe, the survey showed.

Global investors are predicting further policy action from the ECB – 42% of the panel now expects the ECB to start quantitative easing (QE) by the end of 2014, up from 32% expressing that view in August. Furthermore, the proportion saying there will be no QE programme has fallen to 19%t this month from 31%last month.

“This month’s survey highlights the end of US and European central bank consensus – and as the first Fed rate hike since 2006 draws closer, we’ll see a new US dollar bull market and movement out of bonds,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. “While investors welcome the ECB’s actions, the region is still lacking its growth mojo. It will take time for growth to materialize from policy action, and there are no guarantees it will,” said Manish Kabra, European equity and quantitative strategist.


Investors awaiting return of growth mojo

Despite the headline cash level falling, September’s survey indicates that investors are treading water. Average cash balances, which soared a month ago to 5.1% of portfolios, have fallen back in line with July’s levels at 4.6%. But that does not mean investors are rushing to take on more risk. A net 22% of asset allocators say they are still overweight cash (down from a net 24% in August).

Allocations to equities ticked up modestly – with a net 47 % overweight the asset class, up by a net 3 percentage points a month ago. The proportion of allocators underweight bonds fell two percentage points to a net 60%.

Movements in and out of sectors were limited with Materials and Energy making greatest gains.

Investors have expressed caution towards use of capital by corporates – the proportion of investors urging companies to increase capital spending has fallen six percentage points to 56%. More investors want to see companies return cash to shareholders.



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