BofA Merrill Lynch Fund Manager Survey Finds Investors Displaying Growing Conviction in Growth

Portfolio managers indicate that QE era is coming to an end

Investors are increasingly bullish about prospects for global growth and a diminishing number expect further rounds of quantitative easing (QE) by central banks, according to the BofA Merrill Lynch Survey of Fund Managers for March.

A net 28 percent of investors expect the world economy to strengthen in the coming 12 months – a big rise from a net 11 percent in February. As recently as January the majority of respondents predicted that the economy would weaken. Eurozone confidence has risen – this month sees an even split between those expecting a stronger or weaker eurozone economy. In February a net 35 percent predicted the economy would deteriorate.

Investors are more optimistic about corporate profits. A net 6 percent of the panel expect corporate profits to improve in the coming year. A month ago a net 11 percent predicted profits would decline.

Fewer investors expect the U.S. Federal Reserve (Fed) to engage in further QE. Nearly half of the panel (47 percent) expects no further QE in the U.S., up from 36 percent in February. Thirty nine percent predict the European Central Bank will not extend QE, up from 23 percent a month ago. However investors foresee higher inflation with a net 13 percent expect it to rise in the coming year. Only last month a net 16 percent predicted inflation would fall.

“The prospect of higher inflation reflects a victory of central banks in the war against deflation. Risk appetite is rising with hedge funds more active but cash is still on the sidelines to put to work” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research. “We are witnessing a rehabilitation of European growth prospects, boosted by a sharp fall in EU sovereign concerns” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.

Attention shifts to developed economies from emerging markets

Growth prospects in Europe, the U.S. and Japan are overshadowing emerging markets where some investors are turning bearish.

Global investors hold far fewer fears about the eurozone. The numbers naming EU sovereign debt as their number one ‘tail risk’ has declined sharply to 38 percent this month from 59 percent in February. Investors within the eurozone are both more bullish about growth and far less worried about corporate profits. A net 7 percent expect corporate earnings in the eurozone to deteriorate in the coming 12 months, down from a net 39 percent in February and a net 84 percent in December.

A net 29 percent of U.S. investors say the U.S. economy with get stronger in the year ahead, up from a net 15 percent in February. Japanese fund managers are the most bullish with a net 91 percent saying that Japan’s economy with strengthen, up from a net 47 percent two months ago.

While Global Emerging Markets remain the most popular region, concerns about China’s growth prospects have increased. A net 9 percent of respondents say China’s economy will weaken in the next year, up from a net 2 percent in February. Sentiment within Asia Pacific (excluding Japan) has dampened. A net 41 percent of respondents to the regional survey expect the region’s economy to weaken in the year ahead, up from a net 35 percent last month.

Furthermore inflation concerns have risen significantly among Asia Pacific fund managers. A net 41 percent of respondents now expect inflation in the region to rise in the coming year. Only last month a net 5 percent predicted inflation to fall.

Banks gaining momentum – U.S. underweight position disappears

Banks and financial services companies have enjoyed a second month of popularity among investors as allocations towards equities have risen.

The proportion of global asset allocators underweight banks has fallen 11 percentage points month-on-month to a net 14 percent. U.S. investors are now collectively neutral on banks with a net zero percent over/underweight this month. Two months ago a net 16 percent were underweight banks. In Europe the net underweight position in banks has shrunk to 7 percent from 50 percent in January.

Technology remains comfortably the top sector globally but it has also enjoyed a big surge in popularity among Europeans. A net 33 percent of eurozone investors are overweight technology, up from a net 10 percent in February. The sector has overtaken automotives/parts to become the region’s most popular.

Survey of Fund Managers

An overall total of 278 panelists with US$796 billion of assets under management participated in the survey from 9 to 15 March. A total of 212 managers, managing US$639 billion, participated in the global survey. A total of 145 managers, managing US$354 billion, participated in the regional surveys. The survey was conducted by BofA 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.