Merrill Lynch Fund Manager Survey shows economic recovery remains on track

The Merrill Lynch Survey of Fund Managers for June says that the upturn in global investor sentiment has withstood the recent large sell-off in bonds. Investors have expressed confidence in global economic recovery and, broadly, in the equity markets, in spite of their fears the sell-off would damage sentiment. The yield on 10-year U.S. Treasuries rose to 3.85 % from 3.09 % between the May and June surveys. A net 62 % of respondents believe that the world economy will improve in the next 12 months. For the first time since December 2007 the majority of asset allocators responding to the survey are overweight equities - a net 9 % are overweight the asset class. Just 7 % of the panel believes that the world will go through recession in the coming year, down sharply from 38 % in May and 70 % in April. Investors are rewriting the rules for positioning their portfolios at the start of a new investment cycle. Rather than focus on moving from defensive to early cyclical stocks, such as consumer discretionary, they are basing their strategy around optimism over Chinese growth and emerging markets performance. A net 62 % of respondents say that China’s economy will improve in the next 12 months. A net 19 % of asset allocators are overweight commodities, up from 7 % in May. Reflecting this trend, energy is the sector attracting the biggest positive sectoral swing in allocations this month. A net 30 % of the panel is overweight energy stocks. Global emerging markets (GEM) remains by far the most popular destination globally for equity allocations. A net 37 % of the panel picked out GEM as their preferred region to overweight, well ahead of the U.S., the second-favorite location. However, European respondents do not see an end to recession with 70 % of the regional panel predicting a further downturn in the next 12 months. Global investors view Europe as their least preferred destination, with a net 23 % picking the eurozone as the region they would most like to underweight. The number of investors overweight cash has fallen to a net 12 % in June from a net 20 % in May. At the same time, a net 49 % of respondents believe that the outlook for corporate profits will improve over the coming year. As concerning the inflation, a net 19 % of global investors believe that inflation will be higher in 12 months’ time, compared with only 1 percent predicting lower inflation a month ago. A net 20 % of the panel believed that monetary policy across the globe is too stimulative.