Investor optimism waned in January amid signs of slowing global growth, the sharp drop in the price of oil that threatens to cut production and extreme volatility in currency markets, according to the latest Bank of America Merrill Lynch (BofAML) Fund Manager Survey.
The number of investors who believe the world economy will improve this year dropped to a net 51 percent in January from a net 60 percent in December, the survey shows. At the same time, a net 75 percent of investors say US equities are overvalued, the highest reading since the survey first began asking that question in 2001.
The proportion of investors who believe corporate profits will rise this year fell to a net 38 percent this month from a net 46 percent last month, with a net 8 percent believing corporate operating margins will fall, from a net 1 percent in December, according to a BofAML press release. A net 53 percent say it is unlikely that corporate profits will rise more than 10 percent this year, up from a net 32 percent in December.
Investors were more optimistic, however, about the outlook for European stocks, partly based on the expectation that the European Central Bank (ECB) will soon launch a program of quantitative easing (QE) to help stimulate the region’s economy. In the latest survey, 72 percent of investors predicted that the ECB will launch a QE program in the first quarter.
‘Amid expectations of ECB stimulus, consensus is convinced that Europe is the region to overweight in the coming year. But, on an absolute basis, European stocks will be vulnerable to headwinds from outside the region,’ Manish Kabra, European equity and quantitative strategist for BofAML, says in the press release.
After a drop of more than 50 percent in the price of oil in recent months, the number of respondents who say oil is undervalued jumped to a six-year high of 45 percent in January, from 36 percent in December. At the same time, the proportion of investors who are underweight energy stocks rose to a net 25 percent from a net 22 percent.
