The Merrill Lynch global growth indicator registered a reading of zero, signalling a balance between the numbers of optimistic and pessimistic respondents.
However, the increasingly upbeat mood is yet to translate into positive action. Equity allocations fell close to an all-time low in March while bond and cash weightings remain at elevated levels.
The Merrill Lynch risk and liquidity composite indicator also declined from 31 to 28, marking an end to a tentative pick-up in risk appetite that started last October.
Adviser Fund Index panellists are equally cautious despite positive news for equities in recent weeks. Bestinvest senior investment adviser Adrian Lowcock says stockmarket rallies in March were driven by sudden changes in sentiment rather than improving fundamentals.
On Monday, March 23, the S&P 500 posted its biggest one-day gain since last October as investors reacted positively to details of the American Treasury’s toxic asset plans.
Lowcock says: “We are still wary of any recoveries at the moment. Two weeks ago, market sentiment suggested that there was no hope left and that has flipped quite quickly.
“There are opportunities but we are dripfeeding money into the markets. Any rise could be short-lived – we need to see spreads come in and fundamentals dealt with before there can be a sustained recovery.”
Chartwell investment research manager James Davies is also circumspect.
He says: “The rally on March 23 was predominantly around financials. It looks like a bear market rally – the long-term direction of the stockmarkets still cannot be predicted with confidence.”
He adds that slowing Chinese GDP growth is an area of particular concern, with rising internal demand as yet una- ble to fully counterbalance falling exports.
Davies says Chartwell’s clients have increased their cash reserves although risk appetite is slowly returning. “Investors are starting to realise that cash is not providing anything and gilts are a return-free risk,” he says.
Davies says that corporate bonds have been the main recipient of client cash. He highlights Richard Woolnough’s M&G optimal income fund as an attractive buy. The £300m portfolio appears in all three AFI indices, with a total of 13 selections.
There is likely to be continued caution from panellists during the next AFI rebalancing on May 1. Equity allocations range from 47 per cent in the Cautious index to 85 per cent in the Aggressive benchmark while fixed-interest weightings are 7-39 per cent. Last November’s rebalancing saw a marked shift away from domestic exposure, with British equity allocations falling by 5-7 per cent.