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 large increase 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 expects 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
predicts 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 expecting 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” have 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 expects 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.