Investors are showing renewed confidence in global equities amid
radically improved market conditions and growing hopes of economic
growth, according to the BofA Merrill Lynch Survey of Fund Managers for
Allocations towards equities have made the largest one-month leap since
the beginning of 2011. A net 26 percent of asset allocators are
overweight equities, up from 12 percent last month. Appetite for
cyclical stocks, including Industrials and Materials sectors, has picked
up while allocations towards defensive stocks, including Pharmaceuticals
and Telecoms, have fallen. Investors have also reduced cash levels. A
net 13 percent of asset allocators are overweight cash, down from a net
27 percent in January.
A majority of the panel now sees the world economy improving. A net 11
percent says the economy will strengthen in the coming 12 months – in
December, a net 27 percent predicted a worsening economy. Investors also
say that liquidity conditions and the ease of trading have bounced back.
A net 32 percent of the panel assessed liquidity as "positive," compared
with a net 7 percent saying "negative" in January – the largest
one-month improvement since the survey first asked the question in
"Improved liquidity has aided this rally, but it's important to
emphasize that it also reflects improving economic sentiment. Hard
economic data has to continue improving to sustain a recovery," said
Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch
Global Research. "The strongest indication of risk appetite is
investors' definitive move into cyclicals from defensive stocks and the
closing of underweight positions in banks, especially in Europe," said
Gary Baker, head of European Equities strategy at BofA Merrill Lynch
Emerging markets benefit from bounce in risk appetite
As risk appetite has risen, investors have bolstered allocations to
emerging market equities. A net 44 percent of asset allocators are
overweight emerging market equities this month, up from a net 20 percent
in January. Demand for commodities has risen. A net 10 percent of global
asset allocators are overweight the asset class, up from a net 5 percent
one month ago.
A growing majority of 86 percent believes the Chinese economy is heading
for a soft rather than hard landing. Only a net 2 percent of investors
in Asia and emerging markets now believe China's economy will weaken in
the next 12 months, an improvement from a net 23 percent in January.
Looking ahead, a net 36 percent of the global panel says that they would
like to overweight emerging markets more than any other region.