The bank’s latest fund manager survey notes that sentiment has turned sharply since February, when a net 58% believed the world economy would strengthen in the next 12 months. The latest study also finds faith in corporate earnings dwindling: only a net 9% believe corporate profits will improve in the coming months.
Other indicators are still more negative: the proportion believing the European economy will weaken in the next year is now a net 8%, while expectations of a US interest rate rise this year, which remained a central case for a remarkable 69% of respondents last month, have now completely dissipated. Some 73% now believe this will not take place until 2012.
Respondents do, however, continue to favour the US market in terms of overweight equity positions for 2011. Moreover, the more gloomy macro views have not yet resulted in a concordant fall in risk appetite, BofA ML noting that fund managers have only “trimmed” exposure to equities and commodities, while adding to cash and bond holdings “slightly”.
“A triple dip in growth expectations is reshaping investors’ stance on risk,” said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.
But Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research, suggested overly negative views may themselves represent a danger: “a risk for investors is that pessimism on Europe now looks to be overdone, particularly in light of strong recent GDP data,” he said.
