U.K. Unpopularity Deepens as Scottish
Independence Vote Looms
Sentiment towards Europe has picked up in the wake of recent
monetary policy easing by the ECB, while investors are increasingly
sure of a rate hike by the Fed in spring 2015, according to the
BofA Merrill Lynch Fund Manager Survey for September.
Belief in Europe’s stocks has started to recover after the
heavily negative sentiment expressed in August’s survey. In the
wake of the decision to lower rates to close to zero, asset
allocators have increased exposure to eurozone equities. A net 18
percent are overweight the region, up from a net 13 percent a month
ago. Europe is also the region that a net 11 percent of investors
most want to overweight in the coming 12 months. Last month, a net
4 percent wanted to underweight Europe.
Global investors are predicting further policy action from the
ECB – 42 percent of the panel now expects the ECB to start
quantitative easing (QE) by the end of 2014, up from 32 percent
expressing that view in August. Furthermore, the proportion saying
there will be no QE program has fallen to 19 percent this month
from 31 percent last month.
At the same time, expectations of Fed tightening have firmed.
Nearly half (48 percent) of investors are expecting the first rate
hike in nine years to take place in the second quarter of 2015, up
from 38 percent last month. Accordingly, the proportion of
respondents backing the U.S. dollar to strengthen against the euro
and yen recorded a survey high of a net 86 percent.
“This month’s survey highlights the end of U.S. and European
central bank consensus – and as the first Fed rate hike since 2006
draws closer, we’ll see a new U.S. dollar bull market and movement
out of bonds,” said Michael Hartnett, chief investment strategist
at BofA Merrill Lynch Global Research. “While investors welcome the
ECB’s actions, the region is still lacking its growth mojo. It will
take time for growth to materialize from policy action, and there
are no guarantees it will,” said Manish Kabra, European equity and
quantitative strategist.
Investors awaiting return of growth mojo
Despite the headline cash level falling, September’s survey
indicates that investors are treading water. Average cash balances,
which soared a month ago to 5.1 percent of portfolios, have fallen
back in line with July’s levels at 4.6 percent. But that does not
mean investors are rushing to take on more risk. A net 22 percent
of asset allocators say they are still overweight cash (down from a
net 24 percent in August).
Allocations to equities ticked up modestly – with a net 47
percent overweight the asset class, up by a net 3 percentage points
a month ago. The proportion of allocators underweight bonds fell
two percentage points to a net 60 percent. Movements in and out of
sectors were limited with Materials and Energy making greatest
gains.
The lack of movement perhaps reflects a static outlook on the
economy. A net 54 percent of the global panel expects the world
economy to strengthen in the coming year. Expectations in profits
paint a similar picture with a net 37 percent saying profits will
improve in the coming year, down two percentage points
month-on-month.
Investors have expressed caution towards use of capital by
corporates – the proportion of investors urging companies to
increase capital spending has fallen six percentage points to 56
percent. More investors want to see companies return cash to
shareholders.
Scottish independence threat deepens troubles for U.K.
equities
As opinion polls indicated the referendum for Scottish
independence was too close to call, negativity towards U.K. stocks
deepened. The U.K. has entrenched its status as the world’s least
popular region among asset allocators this month. A net 16 percent
of the panel is underweight U.K. equities.
Looking ahead, the U.K. is the region that global investors most
want to underweight in the coming 12 months – with a net 14 percent
of those surveyed expressing that view. Furthermore, a net 20
percent say that the U.K. has the least favorable profit outlook,
up from a net 12 percent in August. Investors have not markedly
changed their view on sterling valuation, however.
Fund Manager SurveyAn overall total of 202 panelists with US$556
billion of assets under management participated in the survey from
5 September to 11 September 2014. A total of 159 managers, managing
US$427 billion, participated in the global survey. A total of 96
managers, managing US$199 billion, participated in the regional
surveys. The survey was conducted by BofA Merrill Lynch Global
Research with the help of market research company TNS. Through its
international network in more than 50 countries, TNS provides
market information services in over 80 countries to national and
multi-national organizations. It is ranked as the fourth-largest
market information group in the world.
BofA Merrill Lynch Global ResearchThe BofA Merrill Lynch Global
Research franchise covers more than 3,500 stocks and 1,180 credits
globally and ranks in the top tier in many external surveys. Most
recently, the group was named Top Global Research Firm of 2013 by
Institutional Investor magazine; No. 1 in the 2014 Institutional
Investor All-Europe survey; No. 1 in the 2014 Institutional
Investor All-Asia survey for the fourth consecutive year; No. 1 in
the Institutional Investor 2014 Emerging EMEA Survey; No. 2 in the
2013 Institutional Investor All-America survey; No. 2 in the 2013
All-Latin America survey; and No. 2 in the 2013 All-China survey.
The group was also named No. 2 in the 2014 Institutional Investor
All-Europe Fixed Income Research survey; and No. 2 in the 2013
All-America Fixed Income survey for the second consecutive
year.
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