Investors are making a return to Europe as they retreat from emerging market and Japanese equities, according to a new fund manager survey for June from BofA Merrill Lynch.
According to the report, investor confidence has risen in the past month in spite of market instability and a 2.5% fall in world equities over the survey period. A net 56% of global investors believe the world economy will strengthen over the coming year, up from a net 48% in May.
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Equity allocations increased during the month, with a net 48% of asset allocators being overweight equities, compared with a net 41% in May.
The report added that while allocations to the eurozone and US rose, investment in global emerging market equities fell to their lowest since December 2008. A net 9% of asset allocators are now underweight emerging market equities – the first underweight reading since 2009 and down from a net 3% overweight reading last month.
Investors now identify a China hard landing as the greatest tail risk – more of a concern than eurozone sovereigns or banks. A net 31% of regional fund managers said that China’s economy will weaken in the coming 12 months, compared with a net 8% expressing that view in May.
A net 25 percent of the global panel says that emerging markets is the region they would most like to underweight in the coming 12 months, according to the survey.
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By GlobalDataAllocations to commodities have also reached a record low with a net 32% of asset allocators holding underweight positions.
"The biggest contrarian play in the market today is assets linked to China. The lows in emerging market equity and commodity allocations suggest the market has over-positioned itself for a shock from China," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
