BofA Merrill Lynch Fund Manager Survey Finds
Surge in Support for Equities
Investors Forecast, but Do Not Yet Fear, Higher Inflation
January 18, 2011 09:33 AM Eastern Time
NEW YORK & LONDON--(EON: Enhanced Online News)--Positive economic sentiment has helped drive
investor appetite for global equities to its highest level in 3 1/2 years, according to the BofA Merrill Lynch Survey of
Fund Managers for January.
A net 55 percent of asset allocators say that they are overweight global equities, the highest reading since July 2007.
It represents a significant increase from December when a net 40 percent was overweight the asset class. At the
same time, bond allocations fell. A net 54 percent is underweight bonds, up from a net 47 percent a month ago.
Behind this rise is growing confidence in the global economy and corporate profits. A net 55 percent of investors
expect the world’s economy to strengthen in 2011 with 39 percent predicting “above trend” growth in the coming 12
months, the highest reading since the question was introduced in February 2008. A net 57 percent believes that
corporate profits will rise 10 percent or more this year, up from 45 percent in December.
A growing majority expects global inflation to increase this year – a net 72 percent in January, up from a net 48
percent two months ago. But higher inflation is not seen necessarily as a threat. A net 42 percent of investors believe
monetary policy is “too stimulative,” fewer than in November.
“The combination of growth optimism and a benign view towards higher inflation provide a potent case for equity
investment,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.
“Investors believe monetary easing is working; in the absence of either tighter policy or weaker data, equity
enthusiasm looks contagious,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global
U.S. and Japan sentiment improves; emerging markets decline
Growing belief in U.S. equities, already evident in December’s survey, has firmed significantly this month. A net 27
percent of the global panel is now overweight U.S. equities, the highest reading since November 2008 and
surpassing December’s level of a net 16 percent.
A net 15 percent of the panel would like to overweight U.S. equities more than any other region, up from a net 7
percent in December. A net 43 percent expects the U.S. dollar to appreciate versus the euro or the yen on a trade-
weighted basis, up from a net 14 percent two months ago.
Japan has also benefited from improved sentiment. Global investors have moved overweight Japanese equities for
the first time since May 2010 and for only the fifth month in 3 1/2 years. A net 5 percent of the global panel is
overweight Japanese equities, compared with a net 29 percent being underweight in November.
Domestic Japanese sentiment is strengthening. A net 57 percent of respondents to the regional Japanese survey
expect the country’s economy to improve this year, up from a net 42 percent in December. Sentiment has improved
steadily since September last year when there was an even split between those predicting a stronger economy and
those expecting weakness.
Global emerging market support remains high but has continued to decline. A net 43 percent of asset allocators are
overweight GEM equities, but this is lower than the net 56 percent two months ago. A net 20 percent of investors
want to overweight GEM equities more than any other region. This reading has slipped from a net 31 percent in
December. These lower readings come as belief in China’s economic prospects has eroded. A net 19 percent of
respondents to the regional survey say that China’s economy will weaken this year. Two months ago, a net 16
percent forecast a stronger Chinese economy.
Commodities investment, a bellwether for emerging market optimism, has fallen with a net 16 percent of asset
allocators overweight the asset class compared with a net 22 percent a month ago. This fall comes despite the fact
that commodities traditionally benefit when investors expect higher inflation.
European investors feel New Year joy
European fund managers have started 2011 in stronger spirits. The proportion of the panel predicting a stronger
European economy has leapt to a net 44 percent from a net 26 percent last month. An increasing number believe
European companies will deliver improved earnings in 2011. This optimism comes as global concerns about EU
sovereign debt fund risk have fallen away from the highs of December.
Survey of Fund Managers
A total of 199 fund managers, managing a total of US$562 billion, participated in the global survey from 7 January to
13 January. A total of 169 managers, managing US$412 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.
The BofA Merrill Lynch Global Research franchise covers over 3,200 stocks and 880 credits globally and ranks in
the top tier in many external surveys. Most recently, the group was named 2010 Top Global Broker (second
consecutive year), Top Europe Broker, No. 2 U.S. Broker and No. 3 Asia broker by Financial Times/StarMine.
The team was also named Best Brokerage by Forbes/Zacks for the second consecutive year.
In addition, the group was named No. 1 in the 2010 Institutional Investor All-Emerging Europe and All-Latin
America Research team surveys and No. 3 in the 2010 Institutional Investor All-America Equity, All-America Fixed
Income and All-Europe Research team surveys. The group was also the winner of the Emerging Markets’ magazine
EM Research Global Award for 2010.
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