Last updated: 18:54 / Thursday, 20 June 2013
Survey by Bofa Merrill Lynch

The biggest Contrarian Play in the Market Today is Assets Linked to China

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The biggest Contrarian Play in the Market Today is Assets Linked to China

Investors are returning to Europe as they retreat from emerging market and Japanese equities, according to the BofA Merrill Lynch Fund Manager Survey for June.

Equity Allocations Increased

Investor confidence has risen in the past month in spite of market instability and a 2.5 percent fall in world equities over the survey period. A net 56 percent of global investors believe the world economy will strengthen over the coming year, up from a net 48 percent in May. Equity allocations increased. A net 48 percent of asset allocators are overweight equities, compared with a net 41 percent in May.

Pobabilities of a Hard Landing in the Chinese Economy Grow Fourfold

But while allocations to the eurozone and U.S. rose, investment in global emerging market equities fell to their lowest since December 2008. A net 9 percent of asset allocators are now underweight emerging market equities – the first underweight reading since 2009 and down from a net 3 percent overweight reading last month. Investors now identify a China hard landing as the greatest tail risk – more of a concern than eurozone sovereigns or banks. A net 31 percent of regional fund managers say that China’s economy will weaken in the coming 12 months, compared with a net 8 percent expressing that view in May.

Allocations to commodities have also reached a record low with a net 32 percent of asset allocators holding underweight positions.

Optimism builds within the eurozone

Equity allocations increased month-on-month across 13 of the 19 sectors assessed in Europe. The greatest positive swings came in telecoms, financial services, banks and chemicals. A net 3 percent of European investors are now overweight Telecoms, compared with a net 24 percent underweight in May. A similar net underweight position was wiped out in financial services over the month. A net 18 percent of respondents are now overweight banks, after the market was net neutral a month ago.

Signs of great rotation from bonds resurface

Furthermore, expectation of higher long-term yields has reached the highest level recorded by the survey since 2004. The proportion of the global panel forecasting higher long-term rates in 12 months’ time leapt to a net 81 percent from a net 55 percent last month. Only 4 percent of the panel sees rates falling. At the same time, the proportion forecasting higher short-term rates also soared, up to a net 43 percent from a net 14 percent in May.

Fear that Abenomics – Japan’s three-pronged stimulus plan – will fail has become investors’ second-largest tail risk after China and interrupted the strong run in Japanese equities. The proportion of asset allocators overweight Japanese equities has fallen to a net 17 percent from May’s seven-year high of a net 31 percent. 

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Encuesta a Gestores de Fondos de BofA Merrill Lynch

Un total de 248 panelistas con 708.000 millones de dólares bajo gestión han participado en la encuesta, realizada del 7 al 13 de junio.

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