Fund managers have turned bullish about global economic growth prospects and corporate profits, according to the latest monthly survey from Bank of America Merrill Lynch. Emerging markets are proving particularly popular under the new-found optimism.
Sentiment towards the global economy reached its highest level since early 2004, with a net 57% of panellists expecting a stronger economy over the next 12 months. Gary Baker, a co-head of international investment strategy at Banc of America Securities-Merrill Lynch, says, Investors are now very bullish on global growth prospects.
Expectations on corporate profits are also upbeat, with over a quarter of respondents expecting a growth in earnings per share of over 10% over the next 12 months. Its a fairly remarkable turnaround from where we were, says Baker.
This renewed optimism has translated into a strong tilt towards emerging markets and Asia in particular. Global emerging markets is what its all about, says Baker. Pretty much all asset managers packed their bags and headed east last month. Managers have taken correspondingly underweight positions in Britain, continental Europe and Japan.
In relation to sectors, the shift is away from defensives. They have been pretty much routed, says Baker. The most popular sectors are technology, energy and materials. Fund managers have more balanced portfolios as a result of the reallocation.
Baker says that strong real economic data, as opposed to sentiment alone, would push markets higher. On the other hand, disappointment from China or emerging markets would have an adverse effect.
Some 220 fund managers with a total of $617 billion (399 billion) of assets participated in the survey. It was conducted with TNS, a market research company, from May 8-14.