Global expectations slump but investors still bullish on Europe, says BofA ML

Global growth, profit and liquidity expectations are at their worst level since summer 2012, according to the Bank of America-Merrill Lynch Fund Manager Survey for January.

Asset allocators have moved out of stocks, into cash and bonds, with cash levels up to 5.4% from 5.2% last month, their third highest level since 2009.

Still, Bank of America said investors “have not capitulated and are not max bearish”, with just 12% believing a recession will occur in the next 12 months.

“True capitulation for global asset allocations would require a weak USD, stronger emerging markets and higher commodity prices,” the bank said, adding that investors remain ‘overweight’ equities and ‘underweight’ bonds.

Meanwhile, bullishness towards Europe is still intact and the survey found half of European fund managers expect stronger growth, while half of global investors would ‘overweight’ the region on a 12-month view.

Allocation to Eurozone equities fell slightly to a net 51% ‘overweight' from 55% last month, as it remained the most over-owned region.

There was a mild improvement as far as the UK was concerned, with 19% of global fund managers ‘underweight’ equities there compared with 21% UW in December.

In terms of sectors, allocations to utilities and telecoms saw the biggest increases, while oil & gas and insurance saw the largest drops.

Fund managers remained ‘underweight’ commodities and banks.

“Generally, consumer over commodity-plays is the theme most reflected in consensus positioning. In addition, all financial subsectors show net underweights, while both Banks and Insurance are considered undervalued,” said Merrill.