Investor bullishness towards European equities has reached pre-crisis highs as markets digest the emerging market sell-off, according to the BofA Merrill Lynch fund manager survey for September.
According to the study, a net 36% of global asset allocators are overweight the region, more than twice the net 17% recorded in August. A net 12% of asset allocators are overweight UK equities, which represents an all-time high.
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However, allocations to emerging market equities remain low with a net 18% of the panel underweight.
The report found that investors are interested in maintaining flows into Europe. A net 27% of investors said that the eurozone is the region they would most like to overweight in the coming 12 months – also the highest reading since May 2007.
While optimism is returning to Europe, cash levels have risen to an average of 4.6% of portfolios. The proportion of asset allocators overweight cash has risen. Eight out of 10 investors said they believe the global economy will continue to grow at below trend rate in the coming 12 months.
Regarding China, a net 28% of respondents from Japan, Asia Pacific Rim and global emerging markets said they believe China’s economy will strengthen in the year ahead. That’s in sharp contrast with the net 32% forecasting a weakening economy just one month ago – a monthly swing of 60 percentage points.
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By GlobalDataAlso, negative sentiment towards global emerging markets has stabilized, the report says. The number of investors saying that emerging markets is the region they most want to underweight has fallen to a net 21% in September from a net 29% a month ago.
Investors indicated that they see the best value in emerging markets in almost a decade. A net 36% of the panel said that global emerging market equities are the most undervalued – or cheapest – of all the regions. This is the strongest undervalued reading since January 2004.
Asset allocators, meanwhile, have been steadily decreasing the underweight positions in commodities since June. A net 16% of the respondents were underweight this month versus a net 26% in July.
An overall total of 236 panelists with US$689 billion of assets under management participated in the survey from 6 September to 12 September 2013.
