Investors are positioning themselves for slower growth in China and prolonged low inflation, which has sent commodities allocations to a four-year low. Europe is starting to come back, with investors becoming optimistic about the investment opportunities there.
According to the BofA Merrill Lynch Fund Manager Survey for May, a net 8 percent of fund managers in Japan, Asia-Pacific Rim and Global Emerging Markets expect China’s economy to weaken over the next 12 months, compared with a net 9 percent saying it would strengthen a month ago.
Fund Managers are saying that they see little threat of inflation, and the proportion of investors expecting short-term interest rates to rise has fallen to a net 14 percent from a net 32 percent in April.
Investors have responded by reducing allocations to commodities and emerging markets and upping allocations to bonds. Twenty-nine percent of global asset allocators are underweight commodities – an increase from 11 percent in March and the lowest reading since December 2008.
Seventeen percent of asset allocators remain underweight energy stocks. The proportion of global investors’ overweight emerging market equities has plummeted to 3 percent from 34 percent in March. Thirty-eight percent of the panel is underweight bonds, down from 50 percent in April.
According to the survey, investors in Europe would like to see more policy action, but they are starting to see the Eurozone as less of a problem and more of an opportunity. Thirty-eight percent of the global panel believes that Eurozone equities are undervalued, a significant increase from the 23 percent who said the same in April.
European respondents are more positive about growth than a month ago, with 24 percent of European fund managers believing that the European economy will strengthen in the coming year, up from 19 percent in April.
Belief in Japanese equities remains strong, with 31 percent of global asset allocators overweight Japanese equities compared to 20 percent overweight in April.
BofA Merrill Lynch Research surveyed 231 panelists with $661 billion of assets under management from May 3-9, 2013. A total of 177 managers, managing $517 billion, participated in the global survey and 109 managers participated in regional surveys.