The BofA Merrill Lynch January Fund Manager Survey shows investors geared up for stronger growth and inflation, but are still reluctant to slash cash.
“Ahead of the US presidential inauguration, investors are positioned for stronger growth and inflation, but are not willing to turn fully bullish with China-related risks on the horizon,” said Michael Hartnett, chief investment strategist.
Manish Kabra, European equity quantitative strategist, added that, “Fund managers have returned to Europe amid improvement in the macro outlook, but UK remains the most underweighted region.”
“USD/JPY and Japanese stocks have been bought as inflation assets,” noted Shusuke Yamada, chief Japan FX/equity strategist. “Whether the post-election market trend reaccelerates or unwinds, these two asset classes are likely to be among the most impacted.”
Other highlights include:
- Investor expectations of global growth improve to 2-year highs (net 62% from net 57% in December), while global inflation expectations remain elevated, with the fifth highest reading on record (net 83% from net 84% last month)
- The percentage of investors expecting “above-trend” growth and inflation is at a 5.5-year high (17% from 12% in December)
- Investors continue to identify Long USD as the most crowded trade (47%), while the highest percentage since April 2003 thinks that the Euro is undervalued (net 13%)
- Big jump in percentage of investors expecting corporate earnings to rise 10% or more in the next 12 months (improved to net -22% from net -47% last month), the most bullish reading since June ‘14
- However, cash levels rose to 5.1% from 4.8% in December, well above the 10-year average of 4.5%
- The three most commonly cited tail risks are trade war/protectionism (29%), US policy error (24%), China FX devaluation (15%)
- In January, investors said they were buying Eurozone, tech, equities and REITs, while selling industrials, EM equities and commodities
- Allocations to Eurozone equities rose sharply to net 17% overweight from net 1% underweight last month
- Allocation to Japanese equities remains unchanged from December at net 21% overweight, but optimism has room to grow