Though the European Union (EU) growth outlook has stabilised, with 44% of fund managers expecting a stronger economy, investors are cautious about sector positioning, according to Bank of America Merrill Lynch’s latest monthly survey.
The report says that European investors are out of financials, global cyclicals and domestic EU exposed sectors despite subdued EU tail risks and stable global and EU growth outlook.
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The report revealed that only 14% of fund manager see the EU as the biggest risk for global economy. In July EU’s cash levels rose to 4.4%, in line with the rise in global cash levels to 4.6%. While global equity allocation rose to net 52% overweight compared to 48% in June 2013.
"However, investors are still taking risk off the table in Europe," said John Bilton, European investment strategist at BofA Merrill Lynch Global Research.
The study found that global investors are still confident in the outlook for economic growth despite their sharply decreased growth expectations for China. A net 52% of respondents said they expect the global economy to strengthen over the next year.
However, sentiment towards China has continued to worsen. A net 65% of regional fund manager now see the country’s economy weakening in the next year, compared to a similar majority anticipating stronger GDP as recently as December 2012.
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By GlobalDataA "hard landing" in China stands out as a major tail risk that fund managers identify, with over 56% ranking it first on this measure – compared to one-third of respondents a month ago.
The reported also revealed that a majority of asset allocators are now overweight equities, up nine points in two months to a net 52%. Confidence in the US is also apparent in a net 83% favouring the dollar over other currencies, the highest reading yet recorded by the survey.
Stances towards bonds are increasingly negative. A net 55% of fund managers are now underweight fixed-income instruments. They have also lifted their cash holdings to 4.6%. This is the highest level in a year and represents a contrarian buy signal for equities.
