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Investors displaying growing conviction in growth, says BofA Merrill Lynch survey

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Investors are increasingly bullish about prospects for global growth and a diminishing number expect further rounds of quantitative easing (QE) by central banks, according to the BofA Merrill Lynch Survey of Fund Managers for March.

A net 28 per cent of investors expect the world economy to strengthen in the coming 12 months – a large increase from a net 11 per cent in February. As recently as January, the majority of respondents predicted that the economy would weaken. Eurozone confidence has risen – this month sees an even split between those expecting a stronger or weaker eurozone economy. In February, a net 35 per cent predicted the economy would deteriorate.
 
Investors are more optimistic about corporate profits. A net 6 per cent of the panel expects corporate profits to improve in the coming year. A month ago, a net 11 per cent predicted profits would decline.
 
Fewer investors expect the US Federal Reserve (Fed) to engage in further QE. Nearly half of the panel (47 per cent) expects no further QE in the US, up from 36 per cent in February. Thirty-nine per cent predicts the European Central Bank will not extend QE, up from 23 per cent a month ago. However, investors foresee higher inflation with a net 13 per cent expecting it to rise in the coming year. Only last month, a net 16 per cent predicted inflation would fall.
 
“The prospect of higher inflation reflects a victory of central banks in the war against deflation. Risk appetite is rising with hedge funds more active, but cash is still on the sidelines to put to work,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research. “We are witnessing a rehabilitation of European growth prospects, boosted by a sharp fall in EU sovereign concerns,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.
 
Attention shifts to developed economies from emerging markets
 
Growth prospects in Europe, the US and Japan are overshadowing emerging markets where some investors are turning bearish.
 
Global investors hold far fewer fears about the eurozone. The numbers naming EU sovereign debt as their number one “tail risk” have declined sharply to 38 per cent this month from 59 per cent in February. Investors within the eurozone are both more bullish about growth and far less worried about corporate profits. A net 7 per cent expects corporate earnings in the eurozone to deteriorate in the coming 12 months, down from a net 39 per cent in February and a net 84 per cent in December.
 
A net 29 per cent of US investors say the US economy with get stronger in the year ahead, up from a net 15 per cent in February. Japanese fund managers are the most bullish with a net 91 per cent saying that Japan’s economy with strengthen, up from a net 47 per cent two months ago.
 
While Global Emerging Markets remain the most popular region, concerns about China’s growth prospects have increased. A net 9 per cent of respondents say China’s economy will weaken in the next year, up from a net 2 per cent in February. Sentiment within Asia Pacific (excluding Japan) has dampened. A net 41 per cent of respondents to the regional survey expect the region’s economy to weaken in the year ahead, up from a net 35 per cent last month.
 
Furthermore, inflation concerns have risen significantly among Asia Pacific fund managers. A net 41 per cent of respondents now expect inflation in the region to rise in the coming year. Only last month, a net 5 per cent predicted inflation to fall.
  
Banks and financial services companies have enjoyed a second month of popularity among investors as allocations towards equities have risen.
 
The proportion of global asset allocators underweight banks has fallen 11 per centage points month-on-month to a net 14 per cent. US investors are now collectively neutral on banks with a net zero per cent over/underweight this month. Two months ago, a net 16 per cent were underweight banks. In Europe, the net underweight position in banks has shrunk to 7 per cent from 50 per cent in January.
 
Technology remains comfortably the top sector globally, but it has also enjoyed a surge in popularity among Europeans. A net 33 per cent of eurozone investors are overweight technology, up from a net 10 per cent in February. The sector has overtaken automotives/parts to become the region’s most popular.
 
An overall total of 278 panelists with US$796 billion of assets under management participated in the survey from 9 to 15 March. A total of 212 managers, managing US$639 billion, participated in the global survey. A total of 145 managers, managing US$354 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 organisations. It is ranked as the fourth-largest market information group in the world.
 

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