Merrill Lynch Fund Manager Survey Finds Surge in Bullishness as Investors Put Cash to
Work
NEW YORK and LONDON, May 20/PRNewswire-AsiaNet/ --
Signs of Exuberance Appear in Rush to Emerging Markets
Bullishness in global markets has reached new heights with seven out of
10 investors who predict the world economy will improve in the next twelve
months, according to the Merrill Lynch Survey of Fund Managers for May.
Supported by positive expectations on corporate profits, portfolio
managers are backing their optimism with action by putting their money to
work. Average cash holdings have fallen to 4.3 percent from 4.9 percent in
April. Equities, while underweight, are more popular, especially cyclical
sectors that are expected to perform best in a recovery. Investors have moved
to a net underweight position in bonds for the first time since last August.
Many are rushing to emerging markets, as investor optimism on China's economy
is higher than at any point in the past six years.
"Investors are finally opening their wallets and reducing cash balances
to mid-cycle levels to buy equities, cyclical stocks and risky assets," said
Michael Hartnett, Banc of America Securities-Merrill Lynch co-head of
international investment strategy. "However, this rush to take on risk,
especially in emerging markets, is reminiscent of bubble-like behavior. A
record net 40 percent of fund managers are looking to overweight the region
in the next 12 months."
"Having addressed their most urgent priority by returning to financial
stocks, this month, investors have added exposure to cyclical, real economy
stocks and further purged defensive overweight positions," said Gary Baker,
Banc of America Securities-Merrill Lynch co-head of international investment
strategy.
Stark turnaround in European sentiment and global profit outlook
Sentiment towards the global economy has completed a sharp turnaround
from the dark days of October 2008, when a net 60 percent of investors
forecasted a worsening outlook. In May's survey, a net 57 percent say the
economy will improve over the next 12 months, up from 26 percent in April.
Nowhere has the reversal in economic outlook been more pronounced than in
Europe. A net 35 percent of respondents to the Regional Fund Manager Survey
expect Europe's economy to improve in the coming year. That's in sharp
contrast to April when a net 26 percent forecasted further deterioration.
Investors have suddenly become bullish about corporate profits with a net
18 percent who say the outlook for global profits will improve in the next 12
months. This represents a big swing from April when a net 12 percent were
bearish about profits.
Risk appetite returns as China optimism hits new high
The heightened appetite for equities is concentrated on emerging markets.
A net 46 percent of investors are overweight emerging market stocks, up from
a net 26 percent in April. Bullishness about China's economy has reached its
highest level since the survey began tracking China in 2003. A net 61 percent
of respondents see its economy improving - in November, a net 87 percent of
the panel expected the Chinese economy to weaken.
A shift out of defensive investments towards cyclical stocks is ongoing.
For the first time since early 2005, panelists are underweight (net 2%) their
favorite recessionary sector, pharmaceuticals, compared with a net 21 percent
overweight in April. Investors have also reduced holdings in Staples,
Telecoms and Utilities in favor of Energy, Materials and Industrials. They
have continued to increase allocations to Banks, reducing the net underweight
position to the sector's lowest since June 2007.
However, on a less sanguine note, asset allocators have yet to fully
embrace equities. A net 6 percent of asset allocators remain under weight
equities globally, with significant underweights in Japan, the eurozone and
the UK. "The recharged optimism of fund managers is not fully matched by
asset allocators. One upside risk for markets is more asset allocation out of
cash and bonds into equities," said Hartnett.
Survey of Fund Managers
A total of 220 fund managers, managing a total of US$617 billion,
participated in the global survey from 8 May to 14 May. A total of 182
managers, managing US$355 billion, participated in the regional surveys. The
survey was conducted by Banc of America Securities-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 organizations. It is
ranked as the fourth-largest market information group in the world.
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SOURCE: Banc of America Securities-Merrill Lynch
CONTACT: Susan McCabe Walley
+1-212-449-0389
susan_mccabe@ml.com; or
Tomos Rhys Edwards
+44-20-7995-2763
tomos_edwards@ml.com
both of Bank of America
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