Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

10416

Investor confidence weakens further, says fund manager survey

RELATED TOPICS​

Investor confidence has weakened further, led by a sharp decline in expectations of corporate profit growth, according to the BofA Merrill Lynch Survey of Fund Managers for July.



BofA Merrill Lynch’s Growth Expectations Composite has fallen to 37 in July from 43 in June and 54 in May.

A severely deteriorating outlook for profits is driving the fall in confidence. A net 38 per cent of investors say corporate profits will worsen in the coming 12 months – compared with a net 19 per cent a month ago. It represents a 39 percentage point drop since May. The two-month drop is similar to the fall in confidence in summer 2011 as the sovereign debt crisis took shape.
 
Belief that corporates can grow profits by 10 per cent or more is at its lowest point since April 2009. A net 69 per cent of the panel expects corporates profit growth to be less than 10 per cent in the coming year. A net 58 per cent says operating margins will decrease, up from a net 41 per cent in June.
 
Both the broader macro-economic outlook and risk appetite have stabilized, however, after two months of sharp deterioration. A net 13 per cent of the panel says that the world economy will weaken in the coming year, a drop of two percentage points after a fall of 26 points from May to June.

BofA Merrill Lynch’s Composite Indicator for Risk and Liquidity rose slightly month-on-month as investors reduced average cash holdings in portfolios to less than five per cent. Most investors expect further quantitative easing, but few expect this to happen in the third quarter.
 
“July’s survey highlights that corporate profit expectations have to catch up with the downgrade in the economic outlook we have seen the past two months,” says Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research.

“Rising equity prices have failed to lift investor gloom and we still see a quarter of investors expecting a global recession while hopes for further policy easing have been delayed,” says Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.
 
Investors’ perception of risk in the eurozone has shifted this month with fears falling about the periphery but rising about Europe’s core. The proportion of respondents who see the risk of a negative shock around Germany’s economy has more than tripled to 32 per cent, up from 10 per cent in June. Concern about France has risen with a majority of investors (55 per cent) believing the French economy could present a negative surprise this year.
 
Fears that Spain or Portugal could spring a negative surprise have fallen, while expectation of good news from Ireland is growing – 32 per cent of investors hope for a positive surprise from Ireland this year, up from 16 per cent in June. Confidence in Greece has fallen, however. The proportion saying Greece will avoid exiting the euro fell to 37 per cent from 44 per cent.
 
European investors see an increasing risk of recession and also concur with rising worldwide concerns about corporate profits. A net 61 per cent of European Regional Survey panelists predict worsening corporate earnings, double June’s reading.
 
Technology has been a favourite sector for global investors for the past three years, but US investors have signalled a possible bursting of the IT bubble. Overall, a net 22 per cent of US respondents to the Regional Survey are overweight technology – a sharp fall from a net 41 per cent a month ago. Within those figures, 19 per cent of the panel are underweight IT, up from nine per cent in June.
 
Global investors have also scaled back technology holdings. A net 32 per cent is overweight technology this month, down from a net 41 per cent in June.
 
US equities have declined in popularity as global asset allocators have cast their net around the world. A net 14 per cent of respondents are overweight US equities, down from a net 31 per cent last month. At the same time, asset allocators have reduced their underweights in eurozone, UK and Japanese equities.
 
Despite commodities as an asset class losing popularity this month, investors see gold as fairly valued and oil as undervalued. The proportion of panelists saying gold is overvalued fell from 10 per cent to one per cent. A net 12 per cent say that oil is undervalued, compared with it being viewed as fairly valued in June. The last time gold was seen as fairly valued was when it was priced at about USD1,000 per ounce. The last time oil was seen as undervalued preceded a surge in the oil price.

Latest News

The trading and investment platform eToro has extended its proxy voting feature to all stocks..
C8 Technologies, the London-based fintech founded by former BlueCrest Capital Management partners Mattias Eriksson and..
DWS has announced the latest development in its strategic growth push in Alternative Credit with..

Related Articles

Pension funds
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next decade, industry research reveals...
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next..
Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income...
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also,..
Lady justice
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI) strategies received glowing commendations from the Bank of England in its March report...
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI)..
Pension funds
Four potential operators of pensions dashboards (Just Group, Legal & General, Moneyhub and Standard Life, part of Phoenix Group) are coming together to instigate a new industry coalition...
Four potential operators of pensions dashboards (Just Group, Legal & General, Moneyhub and Standard Life, part of Phoenix Group) are..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by