Fri, Oct 31, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Asia Pacific Intelligence

Fund managers expect a slowdown in China but a continued boom in Japan

Thursday, June 13, 2013

The latest fund manager survey from BofA Merrill Lynch finds that investors are positioning themselves for a slowdown in China and a prolonged period of low Inflation. Allocators are also scaling back in commodities, sending allocations to a four year low, and Emerging Market Stocks.

"May's Fund Manager Survey demonstrates a clear exit from China and assets connected to China - in the shape of commodities and emerging market equities. But it's worth noting that investors are keeping faith in global growth," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. "We see signs that Europe is the region investors are watching. They are increasingly aware of cheap valuations in European stocks, and concerns over sovereign risk in the region are dissipating," said John Bilton, European investment strategist.

A quarter of the respondents to BofA Merrill Lynch's May survey reported that a hard landing in China and a commodity collapse is their number one "tail risk", an increase from 18% in April. A net 8% of fund managers in Japan, Asia-Pacific Rim and Global Emerging Markets expect China's economy to weaken over the next 12 months, compared with a net 9% saying it would strengthen a month ago.

BofA Merill Lynch panellists also see little threat of inflation, with a net 30% predicting global core inflation to rise over the coming year - down from a net 45% last month. Accordingly, the proportion of investors expecting short-term interest rates to rise has fallen to a net 14% from a net 32% in April.

Investors have responded by reducing allocations to commodities and emerging markets and upping allocations to bonds. A net 29% of global asset allocators are underweight commodities - an increase from a net 11% in March and the lowest reading since December 2008. A net 17% of asset allocators remain underweight energy stocks. The proportion of global investors overweight emerging market equities has plummeted to a net 3% from a net 34% in March. A net 38% of the panel is underweight bonds, down from a net 50% in April.

May's global and regional surveys revealed fledgling signs of optimism towards Europe, although investors within the region also would like to see more policy action. Global investors are starting to see the eurozone as less of a problem and more of an opportunity with the percentage of the panel naming EU sovereigns and banks as number one "tail risk" dropping to 29% from 42%.

A net 38% of the global panel takes the view that eurozone equities are undervalued - a significant increase from a net 23% in April, BofA Merill Lynch reports. "With more investors viewing the U.S. as overvalued, the "valuation gap" between the U.S. and the eurozone has widened even further in the past month" the firm says.

European respondents to the regional survey are more positive about growth than a month ago. A net 24% of European fund managers believe Europe's economy will strengthen in the coming year, up from a net 19% in April. A net 17% see earnings improving in the next 12 months, up from a net 14%. At the same time, a net 31% of regional investors say that fiscal policy is too restrictive, up from a net 19% last month.

Belief in the bull run in Japanese equities remains strong, according to BofA Merrill Lynch with allocations to Japanese equities at their highest since May 2006 with a net 31% of global asset allocators overweight Japanese equities, up sharply from a net 20% overweight in April.

A net 44% of global investors say that the outlook for corporate profits is more favourable in Japan than in any other region - the most bullish outlook captured by the survey since November 2005. Japan also remains the region that investors would most like to overweight over 12 months. A net 25% say Japan is at the top of their overweight list.

With the prospect of corporate profits rising, investors are pressing the case for companies to pay out some cash. A net 27% of the global panel says that pay-out ratios (including share buybacks and dividends) are too low, a rise of six percentage points month-on-month. A 38% say that their preferred use of cash flow would be to return cash to shareholders via buybacks, dividends or acquisitions, up from a 34% in April. A 47% would like companies to increase capital spending, up 1% month-on-month, while only 9% are prioritizing debt repayment.

(This piece first appeared in Opalesque on 15th May.)

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
Asia Pacific Intelligence
Asia Pacific Intelligence
Asia Pacific Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Macks aim to raise $750m for real estate debt fund[more]

    From Therealdeal.com: Father-son duo William and Richard Mack and former Blackstone Group managing director Peter Sotoloff are starting a new real estate debt fund. Together, the trio hopes to raise more than $750 million for the private equity fund, according to the Wall Street Journal. The fund wi

  2. Manager Profile - Seth Klarman: Lessons for retail and institutional investors[more]

    From Valuewalk.com: Seth Klarman is virtually unknown outside value circles, despite his impressive record and value of assets under management. On average Baupost has returned 19% p.a. despite holding a large portion of its assets in cash. During the financial crisis, Seth Klarman’s funds lost some

  3. North America - FATCA leads 75% of U.S. expats to consider dropping citizenship[more]

    From International-adviser.com: Nearly three quarters of American expats are considering the renouncement of their citizenship following July’s introduction of the “absurd” Foreign Account Tax Compliance Act (FATCA). The findings, which were revealed in a survey by deVere, come alongside the news th

  4. New app allows asset managers easy interaction with portfolios, securities, holdings, transaction details[more]

    Komfie Manalo, Opalesque Asia: Global financial services software company SS&C Technologies Holdings has launched Explorer, a powerful data visualization and analysis tool that turns critical investment data into meaningful information. Explore

  5. Opalesque Exclusive: Mariner’s new healthcare mandate applies strategic approach across pharmaceutical and biotech sectors[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: A team of two was hired in February this year t