Fund managers bearish on Europe
More investors are pessimistic about equity markets in the Eurozone than at any point since July 2003, according to the latest monthly fund manager survey from Merrill Lynch.
When asked which regions they would be most likely to overweight and underweight, 28% of fund managers declared they would be most likely to underweight the Eurozone, compared to only 8% who said they would favour the region. The net proportion of fund managers negative on the region is the lowest in almost five years, according to Merrill Lynch.
When a fund manager overweights or underweights a stock, they invest a proportion of their funds in the particular asset that differs from their benchmark. For example, if HSBC makes up 5% of the FTSE 100, a UK equity fund with an 8% holding in the stock would be overweight in HSBC compared to the FTSE 100 index.
Investors were also negative on the prospects for UK equities, with 22% saying they would underweight the market compared to only 1% more likely to overweight it than any other region. The only region to receive positive attention from the survey's respondents was global emerging markets.
Separately, investors were marginally more optimistic about financials. The smallest proportion of respondents since last July was negative about banks. Only 12% said they are aggressively underweighting banks, compared to 16% in April last year and 25% in March last year.
Increasing optimism on banks was reflected in growing optimism about the global economy. Karen Olney, equity strategist at Merrill Lynch, said in the report: "This month’s survey sees the return of a little optimism, with investors marginally less negative on expectations for both economic growth and corporate earnings. What is particularly striking is the way that managers are now less worried about the possibility of a global recession.
"The percentage of panelists thinking that the world is already in recession fell from 24% in April to only 18% in May. At the same time, the percentage of managers of the opinion that a global recession would be ‘likely’ in the next 12 months fell from 40% to just 29%."
However, managers allocating assets across different asset classes remained firm in their convictions of the last few months. The majority remain overweight in cash and commodities and underweight in equities and bonds, according to the research.
The global Merrill Lynch fund manager survey canvassed 191 fund managers responsible for $615bn (€398bn).
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