At the heart of the investment challenge this year is getting to grips with the new reality: emerging market growth is outperforming – and in this respect is decoupling from – the developed world, and yet global asset price correlations are stronger than ever. Enter Bank of America-Merrill Lynch’s monthly Global Fund Manager Survey – the most eagerly awaited sell-side report in the global equity community.
The survey generates buy/sell calls based on investor feedback on developed and emerging world prospects, corporate earnings, the monetary policy stance and inflation. It also gauges risk appetite and cash levels of surveyed portfolio managers, typically with around $550 billion of total assets any given month.
In May, Michael Hartnett, chief global equities strategist at BoAML, noted that equity investors were the most bullish since the credit crisis – but correctly cautioned low cash allocations and complacency portended trouble for valuations ahead. In September, the survey reported a dramatic change in sentiment over China’s economy that showed a net 11% of fund managers with positive views of its growth prospects over the next 12 months.
Debates rage over whether the survey provides insights on lagging or future market trends. But in any case, it has proved the most authoritative resource to frame global equity sentiment over the past year. What’s more, its monthly format offers market players a framework to chart investment trends.
Thanks to the 2009 merger between the two banks, Bank of America Merrill Lynch’s research operation benefits from the firm’s huge global debt and equity distribution capabilities, international client base and large proprietary trading networks to generate intelligence on investor sentiment and the flow of funds. Reflecting this, Daniel Tenengauzer, global head of emerging markets fixed income at the bank, has over the past year put out a slew of reports covering market strategy and asset price correlations to investor acclaim.
These insights are frequently framed within the context of how emerging economy fundamentals will shape medium-term fixed-income market performance. Through his Thought of the Day series, in particular, this year Tenengauzer has argued that the correlation of emerging market bond yields with currencies has broken down. As a result, portfolio allocations must adopt more sophisticated strategies, while intra-regional correlations are at five year lows, he says.
Few global research operations have married data, knowledge of market technicals and economic fundamentals as effectively as Bank of America-Merrill Lynch over the past year to assess the connections between volatile market swings and economic sentiment.
IN THE SPOTLIGHT:
Jonathan Anderson, chief emerging markets economist at UBS, is worthy of special mention. In the age of information-overload, it’s no surprise investors bemoan the barrage of research reports that clutter their email inboxes daily. Meanwhile, economists and strategists often prioritize short-term actionable investment commentary over medium to long-term themes.
It’s no mean feat then that Anderson’s Bad Rules of Thumb series, EM Daily Chart, and EM Perspectives research offerings are so widely read – given their seemingly academic nature. With compelling bite-size insights, backed up with heavy data and original conclusions, Anderson has torn apart commonly-held beliefs this year. These include: the view that narrow money, or M1, typically drives asset markets, that nominal interest rates should be equal to nominal growth rates in the emerging world, and that high credit penetration has a causal impact on growth outperformance.
But the Hong Kong-based economist is best known for his Asia insights – and he has tempered this year’s doom over China’s allegedly broken growth model, arguing, with substantial data, that the country has solid domestic consumption and investment patterns. In sum, as one investor notes: “Even if you disagree with him, you just have to read his research because of the clarity and authority of his insights.”
THE NEW BASELINE SCENARIO:
Economists and strategists at the bulge-bracket firms, in theory, offer unrivalled intelligence, thanks to their army of international economists and G7 strategists to provide a top-down view of developments in the global economy.
But while other industries deploy digital strategies – such as social media networks, information aggregation, online forums, blogs and new technologies – to publicize their message and cement two-way contact with their target audience, sell-side research houses are woefully behind the curve. These platforms are far from frivolous. In this global age of information overload, the medium is as important as the content of the message – and these operations need to be more innovative in marketing their output.