BofA Merrill Lynch Fund Manager Survey Finds Investors Positioning For China Slowdown and Low Inflat

BofA Merrill Lynch Fund Manager Survey Finds Investors Positioning For China Slowdown and Low Inflation

Allocators Scale Back in Commodities and Emerging Market Stocks

NEW YORK--(BUSINESS WIRE)-- Investors are positioning themselves for slower growth in China and prolonged low inflation - sending commodities allocations to a four-year low, according to the BofA Merrill Lynch Fund Manager Survey for May.


A quarter of the respondents to May's survey say that a hard landing in China and a commodity collapse is their number one "tail risk", an increase from 18 percent in April. 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.

Panelists are sending strong signals that they see little threat of inflation. A net 30 percent expect global core inflation to rise over the coming year - down from a net 45 percent last month. Accordingly, 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. A net 29 percent of global asset allocators are underweight commodities - an increase from a net 11 percent in March and the lowest reading since December 2008. A net 17 percent of asset allocators remain underweight energy stocks. The proportion of global investors overweight emerging market equities has plummeted to a net 3 percent from a net 34 percent in March. A net 38 percent of the panel is underweight bonds, down from a net 50 percent in April.

"May's Fund Manager Survey demonstrates a clear exit from China and assets connected to China - in the shape of commodities and emerging market equities. But it's worth noting that investors are keeping faith in global growth," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. "We see signs that Europe is the region investors are watching. They are increasingly aware of cheap valuations in European stocks, and concerns over sovereign risk in the region are dissipating," said John Bilton, European investment strategist.

Signs of hope in eurozone equities

Fledgling signs of optimism towards Europe are emerging in May's global and regional surveys - although investors within the region also would like to see more policy action. Global investors are starting to see the eurozone as less of a problem and more of an opportunity. The percentage of the panel naming EU sovereigns and banks as number one "tail risk" has dropped to 29 percent from 42 percent.

A net 38 percent of the global panel takes the view that eurozone equities are undervalued - a significant increase from a net 23 percent in April. With more investors viewing the U.S. as overvalued, the "valuation gap" between the U.S. and the eurozone has widened even further in the past month.

European respondents to the regional survey are more positive about growth than a month ago. A net 24 percent of European fund managers believe Europe's economy will strengthen in the coming year, up from a net 19 percent in April. A net 17 percent see earnings improving in the next 12 months, up from a net 14 percent. At the same time, a net 31 percent of regional investors say that fiscal policy is too restrictive, up from a net 19 percent last month.

Japan equities allocation reaches six-year high

Belief in the bull run in Japanese equities remains strong. Allocations to Japanese equities are at their highest since May 2006 with a net 31 percent of global asset allocators overweight Japanese equities. That is up sharply from a net 20 percent overweight in April.

A net 44 percent of global investors say that the outlook for corporate profits is more favorable in Japan than in any other region - the most bullish outlook captured by the survey since November 2005. Japan also remains the region that investors would most like to overweight over 12 months. A net 25 percent say Japan is at the top of their overweight list, in line with April's reading.

Time to pay out or invest, say investors

With the prospect of corporate profits rising, investors are pressing the case for companies to pay out some cash. A net 27 percent of the global panel says that payout ratios (including share buybacks and dividends) are too low, a rise of six percentage points month-on-month. A 38 percent say that their preferred use of cash flow would be to return cash to shareholders via buybacks, dividends or acquisitions, up from a 34 percent in April. A 47 percent would like companies to increase capital spending, up 1 percent month-on-month, while only 9 percent are prioritizing debt repayment.

Survey of Fund Managers
An overall total of 231 panelists with US$661 billion of assets under management participated in the survey from 3 May to 9 May. A total of 177 managers, managing US$517 billion, participated in the global survey. A total of 109 managers, managing US$248 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.

BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers nearly 3,500 stocks and 1,100 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2012 by Institutional Investor magazine; No. 1 in the 2012 Institutional Investor All-Asia survey for the second consecutive year; No. 2 in the 2013 Institutional Investor All-Japan survey for the second consecutive year and No. 2 in the 2012 All-China, All-Europe and All-Latin America surveys; and No. 3 in the 2012 Institutional Investor All-America survey. The group was also named No. 2 in the 2012 Institutional Investor All-America Fixed Income survey and in the 2012 Emerging Markets Equity and Fixed Income survey, covering Emerging Europe, Middle East and Africa; and No. 3 in the 2013 All-Europe Fixed Income Research survey.

Additionally, BofA Merrill Lynch Global Research was named the No. 1 Global Broker by Financial Times/StarMine, as well as ranked No. 1 in the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street 2012 Analysts Surveys. The group was also the winner of the Emerging Markets magazine's EM Research Global Award for 2010 and 2011.

Bank of America
Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. We serve approximately 52 million consumer and small business relationships with approximately 5,400 retail banking offices and approximately 16,300 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYS: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ("Investment Banking Affiliates"), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a registered broker-dealer and a member of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.

Visit the Bank of America newsroom for more Bank of America news.

www.bankofamerica.com



Reporters May Contact:
Rinat Rond, Bank of America, 1.646.855.3152
rinat.rond@bankofamerica.com
Tomos Rhys Edwards, Bank of America, +44.20.7995.2763
tomos.edwards@baml.com

KEYWORDS:   United States  North America  New York

INDUSTRY KEYWORDS:

The article BofA Merrill Lynch Fund Manager Survey Finds Investors Positioning For China Slowdown and Low Inflation originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Behavioral Finance

Why do investors make the decisions that they do?

View Course »

Investing in Startups

The lucrative and risky world of startups.

View Course »

Add a Comment

*0 / 3000 Character Maximum