Japan is the region most in favour, while investors are sending mixed signals about appetite towards Europe, according to the BofA Merrill Lynch Fund Manager Survey for November.
Japanese equities have seen a second big pick up in allocations in consecutive months, and the trend is likely to continue. A net 45% of global asset allocators are overweight Japan, a rise from a net 32% in October and a net 23% in September.
Japan is also the most favored region for the coming year. A net 27% of the investor panel says that Japan is the region they are most likely to overweight in the next 12 months. This represents a nine-year high and a rise from a net 14% in October.
Conviction over Japan appears to be underpinned by a belief in the profit outlook and a view that the country’s stocks are undervalued. A net 26% of respondents identified Japan as having the most favorable profit outlook for the year ahead – a rise of 10 percentage points month-on-month. And a net 17% say that Japanese equities are the most undervalued in the world.
The survey, which polled 214 panelists with total $569bn of AUM, also highlighted that global investors have a restored appetite for risk amid greater optimism over the outlook for profits and the economy.
A net 47 % of the global panel expects the economy to strengthen in the year ahead, a rise from a net 33% in October. Investors have expressed similar positivity over profits – a net 42% say that global corporate profits will improve in the coming year, up from a net 27% last month.
Asset allocators have shifted out of cash and increased their allocations to equities, with the proportion of asset allocators overweight equities rising by 12 percentage points to a net 46%. Hedge funds have also increased their net allocations to equities, the survey highlighted.
Finally, investors appear unsure how to treat European equities. Global asset allocators increased their moderate overweight positions slightly this month – a net 8% are now overweight the region.
But investors have also indicated that they would like to underweight the region in the coming 12 months. Meanwhile, investors inside Europe have indicated optimism over the region’s prospects for improving growth and profits – a net 62% of the regional respondents forecast improving earnings per share for the coming year, up from a net 32% in October.
But, they have increased cash holdings in the past month and have indicated a growing appetite to underweight France and scale back holdings in Italy.