The world is no longer on the brink of an apocalypse. That at least is the view of global fund managers judged by this month’s Merrill Lynch survey.
Gary Baker, co-head of international investment strategy at Banc of America Securities Merrill Lynch, reports “a surge in global growth optimism”. Although there is no evidence of bullish euphoria, “the apocalyptic fear factor has been removed”.
Expectations for a surge in global growth, particularly in relation to China, are a key factor behind the surge. Manager optimism on the prospects for global growth is at a five year high, while expectations for Chinese growth are at their highest since 2003.
Baker says: “Optimism is largely focused on expectations of Chinese growth but it’s no longer just about the middle kingdom.”
The resurgence in optimism has led to a cyclical rotation, with a movement away from defensive sectors such as staples, telecoms and utilities. Managers have slashed their underweight positions in banks from a record 48% in March to 26%. “It’s just become too painful to sit on the sidelines with major defensive positioning,” says Baker.
Risk appetite has risen to a 12-month high. Asset allocators have reduced their underweight positions in equities and their overweights in cash.
Inflation is still seen as falling on a 12-month view, but not as sharply as in recent surveys.
Some 214 fund managers with a total of $561 billion (£377 billion) of assets participated in the survey. It was conducted with TNS, a market research company, from April 2-8.
Manager optimism at three-year high