Fund managers are warming again towards Europe following recent monetary policy easing by the European Central Bank (ECB).
However, while investors predict quantitative easing (QE) from the ECB by the end of the year, in the US a rate hike by the Federal Reserve is expected in the spring of 2015, marking an end to harmonisation between the US and European central banks.
In the UK, the referendum for Scottish independence took its toll in early September, leaving Great Britain the region that global investors most want to underweight in the coming year.
The Bank of America Merrill Lynch Fund Manager Survey for September – released before the Scottish referendum on September 18 – showed a turnaround in sentiment towards Europe, with asset allocators increasing exposure to Eurozone equities.
Respondents to the survey had a net 18% overweight position on the region in early September compared to 13% in the survey period in early July. A net 11% of investors want to overweight Europe in the coming year.
Following recent monetary policy easing by the ECB, 42% of the 202 panelists expects the ECB to start QE by the end of 2014, an increase of 10% since August. Those who say there will be no QE has fallen to 19% this month from 31% last month.
Manish Kabra, European equity and quantitative strategist at BofA Merrill Lynch Global Research, says: "While investors welcome the ECB's actions, the region is still lacking its growth mojo. It will take time for growth to materialise from policy action, and there are no guarantees it will."
Looking to the US, many investors are expecting a rate hike by the Federal Reserve Bank in spring 2015, the first in nine years. Just under half anticipate the rate rise in the second quarter of next year, up 10% from 38% last month. The proportion of respondents predicting that the US dollar will strengthen against the euro and yen reached a survey high of a net 86%.
Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research says: "This month's survey highlights the end of US and European central bank consensus – and as the first Fed rate hike since 2006 draws closer, we'll see a new US dollar bull market and movement out of bonds."
In the UK, the referendum for Scottish independence has cast a long shadow, as the region reinforces its position as the world's least popular region among asset allocators this month. A net 16% of the panel is underweight UK equities and 14% say the UK is the region that they most want to underweight in the coming 12 months. In an increase of 8% from August, a net 20% of respondents say that the UK has the least favorable profit outlook.
More generally, average cash balances have dropped back to July's levels at 4.6%, despite a sharp rise last month to 5.1% of portfolios. Overall, a net 22% of asset allocators say they are still overweight cash, a small decrease since August.
Allocations to equities increased by 3 percentage points with a net 47% overweight the asset class, and the proportion of allocators underweight bonds fell two percentage points to a net 60%.
Just over half of the global panel expects the world economy to strengthen in the coming year, at a net 54%, while 37% believes profits will improve across the same period, down two percentage points from last month.
The proportion of investors urging companies to increase capital spending fell six percentage points to 56%, indicating a feeling of caution and a desire to see companies return cash to shareholders.
Overall, a total of 202 panelists with US$556 billion (€697.6 billion) of assets under management participated in the survey from 5 September to 11 September 2014.
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