Bullishness in global markets has reached new heights, with seven out of 10 investors predicting that the world economy will improve in the next 12 months, according to the Merrill Lynch Survey of Fund Managers for May. The survey includes 220 fund managers with $617 billion in assets.
Positive expectations on corporate profits have led portfolio managers to “put their money to work,” the survey says. Average cash holdings have fallen to 4.3 percent from 4.9 percent in April. Equities, while underweight, are more popular, especially cyclical sectors that are expected to perform best in a recovery.
Meanwhile, investors have moved to a net underweight position in bonds for the first time since last August. Many are rushing to emerging markets, as investor optimism on China’s economy is higher than at any point in the past six years, the survey explains.
“Investors are finally opening their wallets and reducing cash balances to mid-cycle levels to buy equities, cyclical stocks and risky assets,” says Michael Hartnett, Banc of America Securities-Merrill Lynch co-head of international investment strategy. “However, this rush to take on risk, especially in emerging markets, is reminiscent of bubble-like behavior. A record net 40 percent of fund managers are looking to overweight the region in the next 12 months.”
“Having addressed their most urgent priority by returning to financial stocks, this month, investors have added exposure to cyclical, real economy stocks and further purged defensive overweight positions,” explains Gary Baker, Banc of America Securities-Merrill Lynch co-head of international investment strategy.
Sentiment towards the global economy has completed a sharp turnaround from the dark days of October 2008, when a net 60 percent of investors forecasted a worsening outlook. In May’s survey, a net 57 percent say the economy will improve over the next 12 months, up from 26 percent in April.