Fund managers take risk-off stance: BofA-ML

Though investors see value in emerging markets, they have scaled down expectations of a vibrant recovery in corporate profit growth

Geopolitical concerns, brought to the fore by the recent standoff over Crimea, have seen global investors take a risk-off stance, with 81 per cent saying they see geopolitical risks posing a threat to financial markets’ stability. The number of such investors was about four times the number a month ago, according to a Bank of America-Merrill Lynch (BofA–ML) survey of fund managers in March.

On portfolio allocation, 16 per cent of global asset allocators say they are overweight on cash, against 12 per cent last month, with average cash balances at 4.8 per cent of portfolios. A total of 241 panelists, with $636 billion of assets under management, participated in the survey, conducted by BofA-ML Research and market research company TNS. Investors have also scaled back their expectations of a vibrant recovery in corporate profit growth. Now, 40 per cent of global investors believe profits will improve in the coming 12 months, against 45 per cent in February. Of the investors, 12 per cent say it is unlikely corporate profits will rise 10 per cent or more in the coming year, against four per cent in February.

<B>Emerging markets undervalued</B><BR>
While the sentiment towards global emerging markets is set to improve, China remains a worry, with 47 per cent of regional fund managers in Japan, the Asia-Pacific and global emerging markets expecting its economy to weaken in the coming year, against 41 per cent a month ago. However, investors see value in emerging markets, with a record 49 per cent suggesting these were the most undervalued, compared with 36 per cent in January.

Global emerging markets’/Asian sentiment towards Indonesia, India and Mexico saw an improvement in March. Investors remain overweight on the outperformers so far — technology and health care — and underweight on the underperformers  — telecom and materials.

Global asset allocators’ preference for euro zone equities continued, for a seventh month. However, the number of investors seeking to own European Union stocks through the next 12 months fell from an all-time high of 40 per cent in February to 35 per cent in March.

“With neither inflation nor recession posing a threat, we believe the equity bull market is far from over and investors should be putting excess cash into risk assets,” said Michael Hartnett, chief investment strategist, BofA-ML Global Research.

“We see signs that the recent exuberance in sentiment and positioning in Europe is waning. While Europe’s recovery remains in play, markets likely need to consolidate further before resuming their upward trend,” said John Bilton, a European investment strategist.