Investors are still shying away from risk as they remain bearish on equity and commodity markets, reveal a fund managers? survey by BofA Merrill Lynch in October. The survey conducted amongst 286 panelists with $739 billion of assets under management showed that global investors are coming to terms with a possibility of a default by the Greek government. While 85% of the respondents believe that Greece cannot avoid a default, as many as 61% see EU debt as biggest tail risk.
?The survey shows investor consensus has priced in, or hopes for, an orderly default by Greece,? said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Research.
The survey highlights a decline in the global negativity towards Europe. Against 40% of respondent in September, a net 7% of the surveyed says Eurozone is the region they would go underweight in the next one year.
The survey also suggests that the outlook for growth has stabilised and fears of global recession have receded. The proportion of the respondents expecting a global recession in the coming 12 months has fallen to 25% from 40% in September. However, the prospects of a slowdown in China?s economy have gone up. 47% of regional fund managers predict China?s economy will weaken in the coming year, up from 30% last month.
The risk aversion continue to remain at September highs with average cash balances having increased to 5% of portfolio mom in October, up from 4.9% in September. A net 39% of asset allocators are overweight cash (36% a month ago). They also remained underweight equities and commodities for the first time since February 2009.
Emerging market(EM) equities has seen a steep fall in popularity as EM overweight drops from 30% in September to 9% in October. Consumer discretionary continued to be the favourite sector for EM investors in October as a net 69% reported being overweight on the sector. Sentiment improved on the resource sectors; both Materials (+6%) and Energy (+6%) swung from underweight to overweight this month. Financials became even more alienated in October as 50% of fund managers reported being underweight on the sector.
Amongst emerging economies, Russia was once again the most popular overweight country in October (+44%). While popularity of Brazil waned, the country remained an overweight (+25%) for investors. And despite the concern over China?s growth trajectory, EM investors remained overweight on the country. Investors? views on the rest of EM Asia were split; they increased their overweight positions on Indonesia (+38%) and Thailand (+38%), but became more underweight on Malaysia (-50%) and Taiwan (-50%). Global investors remained underweight on India though the underweight position was reduced by about half.