Better days ahead, say fund managers

Signs that feelings towards the economy are turning positive emerged from the fund management industry this week, led by data showing increased flows to equity funds and a survey revealing improved sentiment about China.

In September, net inflows to Ucits-branded equity funds were €3 billon, making it the first month of net inflows since March, according to figures from the European Fund and Asset Management Association (Efama) out yesterday. Net bond inflows halved to €9 billion.

Meanwhile, 51% of fund managers across the globe reported they expect that China’s economy will strengthen in the coming year. This is the highest reading since July 2009 and suggests that optimism in the global economy is outweighing fears about the US fiscal cliff, according to the Bank of America Merrill Lynch (BoAML) Fund Manager Survey that covered 248 fund management participants.

BoAML says “the great rotation out of bonds into equities could be underway” as asset allocation has increased to equities and reduced to bonds for the fifth consecutive month.

Further, Aviva Investors, the UK fund management business, has improved its six-month outlook on the global economy, saying there is a 65% probability of “better days” ahead. The stance recognises the boost to growth and risk assets that is expected after the quantitative easing announcements from the US, Europe and Japan in September.

Aviva’s previous main economic scenario was a 40% probability for “hard times”.

The uplifting signs do not come without warnings, of course.

“The only missing ingredient is a resolution to the US fiscal cliff,” says Michael Hartnett, chief investment strategist in the global research team at BoAML.

Shamik Dhar, head of investment strategy at Aviva Investors, says: “Our ‘better days’ scenario assumes the ECB has bought European politicians enough time to come up with a credible package of debt burden-sharing agreements that will ultimately put the monetary union on a sound footing.

”There is a chance that they won’t be able to deliver, however, which is why we retain the ‘financial crisis’ scenario, albeit on a much lower probability.”

©2012 funds europe

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