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Shanghai's World Financial Center - - China's tallest building
Positive economic sentiment has
helped drive investor appetite for global equities to its highest level in 3-1/2
years, according to the BofA Merrill Lynch Survey of Fund Managers for January.
A net 55% of asset allocators say
that they are overweight global equities, the highest reading since July 2007.
It represents a significant increase from December when a net 40% was overweight
the asset class. At the same time, bond allocations fell. A net 54% is
underweight bonds, up from a net 47% a month ago.
Behind this rise is growing
confidence in the global economy and corporate profits. A net 55% of investors
expect the world's economy to strengthen in 2011 with 39% predicting "above
trend" growth in the coming 12 months, the highest reading since the question
was introduced in February 2008. A net 57% believes that corporate profits will
rise 10% or more this year, up from 45% in December.
A growing majority expects global
inflation to increase this year - - a net 72% in January, up from a net 48% two
months ago. But higher inflation is not seen necessarily as a threat. A net 42%
of investors believe monetary policy is "too stimulative," fewer than in
"The combination of growth
optimism and a benign view towards higher inflation provide a potent case for
equity investment," said Gary Baker, head of European
Equities strategy at BofA Merrill Lynch Global Research. "Investors believe
monetary easing is working; in the absence of either tighter policy or weaker
data, equity enthusiasm looks contagious," said Michael Hartnett, chief
Global Equity strategist at BofA Merrill Lynch Global Research.
US and Japan sentiment improves;
emerging markets decline
Growing belief in US equities,
already evident in December's survey, has firmed significantly this month. A net
27% of the global panel is now overweight US equities, the highest reading since
November 2008 and surpassing December's level of a net 16%.
A net 15% of the panel would like to
overweight US equities more than any other region, up from a net 7% in December.
A net 43% expects the US dollar to appreciate versus the euro or the yen on a
trade-weighted basis, up from a net 14% two months ago.
Japan has also benefited from
improved sentiment. Global investors have moved overweight Japanese equities for
the first time since May 2010 and for only the fifth month in 3 1/2 years. A net
5% of the global panel is overweight Japanese equities, compared with a net 29%
being underweight in November.
Domestic Japanese sentiment is
strengthening. A net 57% of respondents to the regional Japanese survey expect
the country's economy to improve this year, up from a net 42% in December.
Sentiment has improved steadily since September last year when there was an even
split between those predicting a stronger economy and those expecting weakness.
Global emerging market support
remains high but has continued to decline. A net 43% of asset allocators are
overweight GEM (global emerging markets) equities, but this is lower than the
net 56% two months ago. A net 20% of investors want to overweight GEM equities
more than any other region. This reading has slipped from a net 31% in December.
These lower readings come as belief in China's economic prospects has eroded. A
net 19% of respondents to the regional survey say that China's economy will
weaken this year. Two months ago, a net 16% forecast a stronger Chinese economy.
Commodities investment, a bellwether
for emerging market optimism, has fallen with a net 16% of asset allocators
overweight the asset class compared with a net 22% a month ago. This fall comes
despite the fact that commodities traditionally benefit when investors expect
European investors feel New Year
European fund managers have started
2011 in stronger spirits. The proportion of the panel predicting a stronger
European economy has leapt to a net 44% from a net 26% last month. An increasing
number believe European companies will deliver improved earnings in 2011. This
optimism comes as global concerns about EU sovereign debt fund risk have fallen
away from the highs of December.
Survey of Fund Managers: A total of
199 fund managers, managing a total of US$562bn, participated in the global
survey from January 7 to January 13. A total of 169 managers, managing US$412bn,
participated in the regional surveys. The survey was conducted by BofA Merrill
Lynch Research with the help of global market research company TNS.
Clay Carter, head of international equities at Perennial Investment Partners, sees opportunity in Russia's Severstal, Hong Kong's Boer Power and Spain's Amadeus. He shares his investment strategy with CNBC's Oriel Morrison: