Almost three quarters of global investors say the ‘fiscal cliff’ faced by the US this year is the main risk to what is otherwise an improving outlook for the world economy, according to the latest survey of fund managers from Bank of America Merrill Lynch (BofAML).
The October Global Fund Managers Survey finds 72 percent of investors say current global equities prices and macroeconomic data do not sufficiently take into account the potential impact of the US fiscal cliff later this year.
The number of global investors who identify the fiscal cliff as the number one ‘tail risk’ investors face has also increased, to 42 percent in October from 35 percent in September and 26 percent in August, according to BofAML.
Despite the concern over the fiscal cliff, investor sentiment over the prospects for the world economy are improving, the survey shows.
A net 20 percent of global investors in October say they believe the economy will strengthen in the coming 12 months, up from a net 17 percent in September.
At the same time, a net 11 percent of investors say corporate profits will fall in the coming 12 months, down from a net 28 percent last month.
‘While the US fiscal cliff is a hurdle, growing belief in the global economy could spur a more ‘risk on’ stance from investors,’ says Michael Hartnett, chief investment strategist at BofAML Global Research, in a release.
In October, a net 25 percent of asset allocators say they are now overweight equities, up from a net 15 percent in September, indicating a rising tolerance for risk in investments.
Allocations to equities in the eurozone and in emerging markets have risen, while allocations in Japanese equities have declined.
Eurozone equities, seen as much less attractive for investment than US equities as recently as August, have risen sharply in the eyes of global investors.
A net 10 percent of asset allocators say they are overweight in both eurozone and US equities in October. In August, eurozone equities rated a net 13 percent underweight while US equities were a net 13 percent overweight.
‘The outlook for European equities is improving; eurozone fears are receding and appear largely priced into equity risk premiums,’ says John Bilton, European investment strategist at BofAML Global Research, in the release.
‘Core government bonds offer negative real yields so the impetus to rotate into stocks in Europe, as the outlook stabilizes, is profound.’
The global fund manager survey was conducted between October 5 and October 11 and included 269 panelists with $734 bn of assets under management.
