Johannesburg - Global investors are looking to US
equities as they prepare themselves for a year of low growth and low
inflation in 2012, according to the BofA Merrill Lynch Survey of Fund
Managers for December.
The survey of 190 institutional investors indicates a growing
majority, almost two-thirds of the panel, predict 2012 will be a year
of below-trend growth and below-trend inflation. It is the highest such
reading since October 2010 and up from 52% in November.
Investors are responding to the weak outlook with a
preference for US and emerging market equities while the negative stance
towards the eurozone hardens. A net 50% of the panel said the outlook for corporate profits is the most favorable in the US - up
from a net 47% last month.
A record number, a net 72%,
named the eurozone as having the least favourable outlook for corporate
profits. Investors have also expressed a view that the dollar will
strengthen and the euro weaken in 2012.
Some asset allocators dipped into cash reserves to make an
end-of-year move into equities, with the US their preferred destination. A
net 8% of asset allocators are overweight equities this month,
compared with a net 5% underweight in November. But the panel
only increased equity positions in one region - the US.
"With improving growth prospects, US equities are seen as a
popular destination and a refuge from turmoil," said Michael Hartnett,
chief global equity strategist at BofA Merrill Lynch Global Research.
"Investors are slightly more optimistic about equities but
retain a defensive approach, so that means reduced European exposure and
a preference for counter-cyclical stocks," said Gary Baker, head of
European equities strategy at BofA Merrill Lynch Global Research.
Global investors are split over the future of the euro and the
question about whether the eurozone can remain intact. Nearly half of
the panel (48%) believed that no member state will exit the euro
in 2012 or the foreseeable future.
Nearly a quarter of the panel of 190 institutional investors
(24%) expected one of the 17 member states to leave the euro in
the first half of 2012. In total, 45% expected a member to depart
in the foreseeable future, with 7% undecided.
Investors have consolidated defensive positioning in equities.
Global allocations to pharmaceuticals and staples increased over the
past month. Pharmaceuticals have taken over as the most popular global
sector with a net 36% of respondents holding an overweight
position, up from a net 31% in November.
Investors reduced exposure to growth and cyclical sectors
including technology, industrials and discretionary. In industrials and discretionary, respondents were extending already underweight positions.
Key indicators of market sentiment in the survey of fund managers show parallels with the credit crunch months of early 2009.
Investors said liquidity conditions have deteriorated significantly
in the past month to reach their worst level since April 2009. A net 13% of the panel rated conditions (such as depth of market and
breadth of bid-offer spreads) as negative.
In October, a net 4% described conditions as positive,
and at the beginning of 2011, more than a net 50% of respondents
were describing market conditions as positive. Liquidity still has some
way to deteriorate before reaching the nadir of the credit crunch, when
more than a net 60% described conditions as negative.
Concerns about inflation have eased to levels not seen since
2009. The proportion of the panel predicting a fall in inflation fell to
a net 34% in December, down 2 percentage points since November
and the lowest reading since March 2009.
For the first time since March
2009, a majority (a net 6%) believed that global monetary policy
should be more stimulative. At the depth of the crisis more than a net
60% called for monetary stimulus.