The latest BofA Merrill Lynch monthly fund manager survey may have revealed that asset allocators are increasingly optimistic and risk hungry but it’s also shown that the UK is the least loved region at the moment.
The January survey, in which 292 global asset allocators participated, revealed investors have unwound their underweight positions in Japanese equities and global banks over the past month but UK equities and the utilities sector remains the big underweights at -16% and -29%, respectively.
Banking concerns could partly explain the loss of love for all things British but exposure to banks has actually risen in January from a global perspective. A relatively quiet month for sector rotation saw few major changes other than a renewed move into technology and banks losing something of its pariah status, the BofA Merrill Lynch research revealed. The four least favoured sectors were all defensives—among them utilities are by far the least popular as well as being overvalued according to survey participants.
Having tied up year-end positions, investors started the New Year with a vigorous appetite for equities and increased risk and a renewed willingness to buy into laggard sectors and regions. Global asset allocators have consolidated positions in technology and energy but have also increased exposure to banks and consumer discretionary in the past month. The net percentage of respondents underweight banks has fallen to 16% from 37% and though European respondents to the regional survey have become more bullish about banks, global asset allocators appear to have become less confident about the European region itself. A net 11% of investors want to underweight the region over the next 12 months compared to 2% wanting to overweight at last month’s meeting. Banking concerns could go some way to explaining the loss of confidence in the area, though it seems that investors’ unending appetite for emerging markets has also come at the expense of the eurozone.
Global emerging markets are currently the region of choice for investors, with optimism rising to +47% from +45%, with Russia, Turkey and Brazil the top three favoured GEM countries, while South Africa has also seen a substantial increase in favour. Watch our recent video for more on how to gain exposure to emerging markets.
Japan remains a net 10% underweight in January but this is a substantial improvement on December’s 33% underweight and it is also the lowest underweight reading for the region since 2008. Global fund managers believe the region is the most undervalued of all at present, survey results revealed, and over the past two months Japanese equities have become more popular than eurozone equities.
Views on the US remain balanced at a net 1% overweight compared to a marginally underweight reading the month before.
Turning to economics, the January survey shows investors expect stronger global growth and at least 6-9 months of low interest rates and are finally raising their appetite for risk. Investors are now predicting a Fed interest rate hike at end-September, while 43% of European participants expect the ECB to raise rates in the third quarter of 2010 and a further 31% don’t see this happening until at least the fourth quarter.
Overall, BofA Merrill Lynch’s risk & liquidity indicators has surged to 46% in January—its highest since May 2006—and in the absence of negative shocks asset allocators have been adding equities to portfolios while slashing bond exposure. Appetite for commodities and real estate holdings have remained broadly unchanged this month.
