Promises from policymakers, notably recent pledges by European Central Bank (ECB) President Mario Draghi that the central bank stands ready to buy bonds from troubled periphery eurozone states, have eased fears of a global recession, a survey of global fund managers showed.
Expectations that the ECB will engage in quantitative easing have jumped, with eight out of 10 investors surveyed seeing it before the end of the year, the Bank of America Merrill Lynch Global Fund Manager Survey showed.
The global fund managers’ survey of 173 participants with $491 billion worth of assets under management showed “the largest leap in confidence since April to May 2009, when the world emerged from the credit crunch,” Bank of America Merrill Lynch said in a statement.
“August’s surge in confidence seems to be more a triumph of policy projection and potential than positive economic data,” Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research, said in the statement.
“As indicated by the survey, the risk is now that inaction by policy makers would lead to a negative reaction in global markets,” Baker added.
The global fund managers’ survey, published under the title “self-loathing bulls,” suggested that “investors hate being bullish and would prefer to bet on a short-term bounce in equities rather than a major inflection point in the investment cycle.”
Optimism on China increased, with a net 14 percent of 119 fund managers polled for a separate survey on emerging markets seeing the economy improving – the most positive reading since November 2010. The data however was collected before last week’s disappointing exports and bank lending data.
Asset allocators increased their exposure to stocks in emerging markets, with the net percentage of fund managers reporting overweight allocations to EM stocks rising to 23 percent compared with 19 percent in July. It is the largest overweight position across regions.
ASIA REMAINS FAVORITE
Among emerging markets, Asia remained the favorite, with Thailand on the first place followed by Korea and China in investors’ preferences. Turkish equities saw “a surge in interest,” the survey showed, while despite the strength in global energy markets investors chose to trim their overweight allocation to Russia.
Investors in Asia-Pacific cut their overweight positions in China to a net 19 percent overweight, the lowest since October last year, but the world’s second-largest economy still remained the largest overweight position in the region followed by Hong Kong.
Allocation to the Philippines fell in August to 12 percent underweight, lowest since June last year.
Investors reduced exposure to Latin America, with Mexico and Brazil slipping into net underweight. Exposure to Chile and Colombia – which were already underweight - was also trimmed further, the survey showed.
In terms of sectors, investors increased their exposure to energy after keeping it at underweight for three months, while consumer discretionary held on to its favorite status.
For materials and insurance, allocations in Asia Pacific fell to their lowest level on record – with 62 percent underweight. The biggest ever month-on-month decline (of 62 percentage points) was recorded for the media sector, which is now the most underweight among Asia-Pacific investors.
In the region, allocations to tech and autos increased for the second straight month, while staples saw the biggest jump month-on-month, from a 7 percent underweight position to 23 percent overweight.
At a global level, the summer rally caused “only modest” reallocation from cash and bonds into equities, and investors are still underweight commodities. The three largest sector overweight positions at a global level are pharmaceuticals, technology and staples.
The most cyclical areas of the stock markets, banks and materials, are the most shunned and Japan is the largest regional equity underweight position, while 68 percent of the respondents considered the Japanese yen overvalued, the Bank of America Merrill Lynch survey also showed.