An improvement in the European economic situation and outlook are spurring a rise in investor optimism ahead of 2014 that may herald a sudden drop in stock prices, according to the latest Bank of America Merrill Lynch (BofAML) fund manager survey.
The percentage of investors who say they are overweight eurozone equities rose to a net 45 percent in December from a net 43 percent in November, the survey shows. A net 34 percent of asset allocators say they are overweight Japanese equities, from a net 24 percent in November.
BofAML also says investors’ preference for equities is at ‘historically high levels’, with the spread between equity overweights and bond underweights at 118 percentage points in December. That marks a steady gain from 76 percentage points a year ago and only 19 points in July 2012.
Investors are most positive about the prospects for Europe and Japan in the coming year, with investors indicating they expect to increase their allocations in those places in 2014.
‘Belief in the European recovery has reached a stretched level, leaving markets vulnerable to profit taking as portfolio managers seek uncrowded alternatives,’ says John Bilton, European investment strategist for BofAML.
Globally, a net 71 percent of investors believe the economy will strengthen in the year ahead, an increase from a net 67 percent in November. It also marks a sharp increase from a year ago, when a net 40 percent of investors believed the economy would strengthen in 2013.
The percentage of investors who believe corporate profits will rise in the year ahead rose to a net 41 percent in December, making a slight gain from November and a significant increase from a net 11 percent at the end of 2012. Now 55 percent of investors say they want companies to give priority to capital expenditure, a slight rise from 53 percent in November and 45 percent a year ago.
The survey, which ran from December 6 to December 12, included 237 investors with a combined total of $655 bn in assets under management.
