• IS provokes sea-change

    It has been a grave mistake to defy both Russia and France, says Leopold Scholtz.

  • Nene's SAA nemesis

    No political figure seems to have the guts to speak out against Dudu Myeni, says Solly Moeng.

  • The mp3 revolution

    Ian Mann takes a look at the war between digital music and the compact disc.

All data is delayed
See More

Global economy enjoys sweeter sentiment

Jan 15 2013 18:18
I-Net Bridge
Johannesburg - Global investors have entered 2013 in buoyant but not yet exuberant mood‚ according to the BofA Merrill Lynch Fund Manager Survey for January.

The new year sees asset allocators assigning more funds to equities than at any time since February 2011‚ while their confidence in the world’s economic outlook has reached its most positive level since April 2010.

Investors’ appetite for risk in their portfolios is now at its highest in nine years‚ while an increasing number judge equities as undervalued – particularly in Europe. Moreover‚ investors have reduced cash holdings to 3.8% from 4.2% in December.

This marks the most positive reading of this measure of willingness to hold riskier investment assets since April 2011‚ though it has not reached levels that would represent a contrarian sell signal.

Participants’ perception of the US fiscal crisis as the biggest “tail risk” for asset markets has calmed (down nearly 20% points in two months)‚ though it remains their largest concern. Views of China remain very positive‚ with a net 63% still anticipating a stronger economy this year‚ but one in seven sees a Chinese hard landing as their number one risk.

Investors’ bullishness reflects a growing confidence in economic recovery. A net 59% now expect the global economy to strengthen this year‚ compared to a net 40% a month ago. This marks the panel’s most positive outlook since April 2010. An increasing proportion of respondents expect inflation to pick up as well.

“Following the resolution of the US fiscal cliff‚ sentiment has surged. Half of investors now tell us that they would sell government bonds to buy higher-beta stocks‚ which is consistent with increasing growth and inflation expectations‚ and with our call for a ‘Great Rotation’ to start in 2013‚” said Michael Hartnett‚ chief investment strategist at BofA Merrill Lynch Global Research.

“While the survey reveals pockets of exuberance‚ undemanding valuations in Europe should underpin equities unless earnings growth fails to materialize‚” added John Bilton‚ European investment strategist.

“Great Rotation” gains traction

49% of respondents now expect government bonds to be sold to fund purchases of higher beta equities and sustain the “risk on” rally. Last month‚ in contrast‚ only 37% saw the instrument as the likeliest source while 28% expected this to be reduction of cash balances (now 22%) and 19% expected defensive equities (now 15%).

In this environment‚ the perception of Italy as a substantial “tail risk” for Europe has declined sharply. Only 17% of the panel now views the country as the biggest threat to the European story‚ compared to 26% in December. Assessments of the threats from France and Spain have worsened from last month‚ however‚ up to 34% and 29%‚ respectively.

Sectoral swing to financials

The panel has shifted its stance on financial stocks strongly‚ moving to its first net overweight in global bank names since February 2007 following a 15% move versus last month. Nevertheless‚ banks are still perceived as the global equity market’s most undervalued sector. The existing overweight in insurance has also been extended‚ particularly in Europe‚ and now stands its highest level since January 2007.

In contrast‚ appetite for telecoms stocks has fallen to a net 25% underweight. This marks the sector’s lowest weighting from asset allocators since December 2005. While still in positive territory‚ pharmaceuticals have declined to a net 11% overweight. Their fall from a net 24% last month is January’s largest sectoral move.

The perception that consumer staples companies are the most overvalued has also accelerated month-on-month.

Japan enjoys sweeter sentiment

The new Japanese government’s policies continue to improve the country’s outlook. Its growth composite indicator now stands at a striking reading of 96.

Against this background‚ global fund managers are turning more positive. A net 3% are now overweight Japanese equities‚ a sharp reversal of last month’s net 20% underweight. The proportion of investors viewing Japan as the most undervalued market increased this month as well‚ while a growing number see it as having the most favourable outlook for corporate profits.

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.



Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Marketing is a big concern in SA's small business community, followed by a lack of confidence and partnering with the wrong people, according to a survey.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The 25 basis points interest rate increase is:

Previous results · Suggest a vote