GLOBAL - Fund managers are now more optimistic about investment markets for the next 12 months, as just 7% predict there will be a global recession compared to 70% in April, although on a regional basis European managers appears much more sceptical, revealed the Merrill Lynch monthly survey.
Findings from the firm's June Fund Manager Survey showed a net 62% of respondents believe the world economy will improve in the next year, up from 57% in May, as the recent sell-off in bonds has not appeared to have seriously impacted confidence.
Instead, the Merrill Lynch survey highlighted a clear overweight positioning for investors in assets that benefit from rising bond yields, such as commodities and emerging markets, while 78% expect strong global growth going forward and 29% believe corporate earnings could rise by more than 10% over the next 12 months.
Findings from the survey of 226 fund managers with $620bn (€446.4bn) assets under management also showed there were no signs of concern about a "double dip" recession, as asset allocators "finally moved overweight into equities" at 9%, against an underweighting of 6% in May.
Correspondingly, bond allocations slipped to a 15% underweight position from 3% underweight in May, although the biggest move was seen in commodities, which leapt from an overweight position of 7% last month to 19% in June.
However, the global survey highlighted the risk appetite of investors is 38, which is still below the long-term average of 40, suggesting that the confidence in global growth has yet to fully reach asset allocation.
Gary Baker, head of European equity strategy at Banc of America Securities-Merrill Lynch, pointed out that while the global survey revealed a "total reversal" in attitudes going "from recession to recovery" with the percentage predicting a recession dropping from 70% to 7% in just two months, Europe appears more sceptical.
Figures from the European fund manager survey suggested European growth expectations remained steadfast at 62% against 63% in May, however despite this positive sentiment "a net 70% of panellists still see a recession in Europe in the coming year", up from 65% the previous month.
Baker suggested there needs to be some resolution of this paradox in the coming months, which should be seen in some of the sector bets, although as global views have tended to lead Europe it is expected that would continue.
The mis-match in views between Europe and the rest of the globe are underlined by 20% of global asset allocators reporting an underweight on the Eurozone in June, as 46% of respondents see the Euro as being overvalued, while the underweight on the UK also increased from 11% to 20% following suggestions sterling is no longer deemed to be undervalued.
In addition, European equities are no longer seen as cheap, as just 2% believing they are undervalued, against 10% in May. The most popular region remains global emerging markets with 37% of panellists choosing GEM as the preferred region to overweight, while the US was second.
Baker added: "While investors are finally overweight equities, risk appetite remains relatively constrained. Investors seem happy to underweight defensives at this point, but overweight conviction is tightly concentrated on just two sectors; energy and technology."
In Europe, he suggested, there is "still a very cautious 'wait and see' attitude. It wants to see real evidence of growth, not just optimism and opinions, before it starts to sell down bonds and buy equities," said Baker.
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