The survey shows how global investors are buying U.S. equities and retaining confidence in the U.S. dollar while the survey’s risk indicator experienced its largest one-month fall since 2003. Average cash balances rose to 4.3% of portfolios from 3.5% in April, and the proportion of investors overweight in global equities slipped sharply to a net 30% from a net 52% in April, according to a press release.
The number of respondents overweight in U.S. equities ticked upwards in April. A net 66% of the panel expects the dollar to appreciate the most of the reserve currencies. The gulf in confidence between U.S. and European corporate profit has reached a seven-year high, BofA Merrill Lynch said.
A net 33% of respondents believe that the outlook for corporate profits is most favorable in the U.S. while a net 41% say that the outlook is least favorable in the eurozone. That spread of 74 percentage points is the widest since July 2003. The number of U.S.-based investors expecting double-digit earnings growth has risen to a net 54% from 50% in April.
“May’s survey highlights a flight to the U.S., driven by the uncertainty in Europe and underscores a positive U.S. growth outlook,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research, in the press release.
Investors Lose Confidence in Eurozone and Emerging Markets
Concerns in both the eurozone and emerging markets have shaken investors' confidence in global equities and growth prospects for the global economy, according to the BofA Merrill Lynch Survey of Fund Managers for May. The number of investors who believe the global economy will strengthen in the next 12 months fell to a net 42% from a net 61% in April.
Confidence in earnings also slipped. A net 47% of respondents say that profits will improve in the next year, down from a net 67% in April.
The survey points to deepening negative sentiment towards Europe, according to a press release. A net 46% of the panel expects the euro to depreciate, up significantly from a net 23% in April. A net 30% of investors say that the eurozone is the region they would most like to underweight, the lowest reading recorded in the survey. The figure in April was just a net 13%.
The regional survey echoes this pessimism with European investors reducing their expectations of improved growth to the lowest in a year. A net 23% expect Europe's economy to strengthen in the year ahead, down from a net 62% in April.
Japanese fund managers are more bullish about their macro prospects than their counterparts in all other regions with a net 71% expecting the economy to strengthen in the coming year.
Positive sentiment towards emerging market equities has dipped to its lowest since early 2009. The number of respondents overweight in global emerging markets (GEM) equities stands at a net 19% this month, down from a net 31% in April. The proportion of the panel saying that emerging markets have the most favorable outlook for corporate profits is a net 23%, compared with a net 34% a month ago.
GEM fund managers have turned more bearish on China than any month since February 2009. The regional survey shows that a net 29% of GEM investors expect the Chinese economy to weaken in the next 12 months compared with a net 5% predicting a stronger economy in April.
Ninety percent of European investors say that the European Central Bank (ECB) will not raise rates in 2010, up from 62% a month ago.
One in four respondents to the global survey expect no rate rise by the U.S. Federal Reserve before April 2011, compared with one in 10 respondents a month ago. Only 39% of the panel expects a rate increase in 2010, compared with 56% in April. These readings mirror a fall in the number of investors forecasting higher global core inflation a year from now, down to a net 35% from a net 46% in April.
A total of 202 fund managers, managing a total of US$530 billion, participated in the global survey from May 7 to May 13 . A total of 170 managers, managing US$341 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS.