“Great Rotation” gains traction
Forty-nine percent of respondents now expect government bonds to be sold to fund purchases of higher beta equities and sustain the “risk on” rally. Last month, in contrast, only 37 percent saw the instrument as the likeliest source while 28 percent expected this to be reduction of cash balances (now 22 percent) and 19 percent expected defensive equities (now 15 percent).
In this environment, the perception of Italy as a substantial “tail risk” for Europe has declined sharply. Only 17 percent of the panel now views the country as the biggest threat to the European story, compared to 26 percent in December. Assessments of the threats from France and Spain have worsened from last month, however, up to 34 percent and 29 percent, respectively.
Sectoral swing to financials
The panel has shifted its stance on financial stocks strongly, moving to its first net overweight in global bank names since February 2007 following a 15 percentage move versus last month. Nevertheless, banks are still perceived as the global equity market’s most undervalued sector. The existing overweight in insurance has also been extended, particularly in Europe, and now stands its highest level since January 2007.
In contrast, appetite for telecoms stocks has fallen to a net 25 percent underweight. This marks the sector’s lowest weighting from asset allocators since December 2005. While still in positive territory, pharmaceuticals have declined to a net 11 percent overweight. Their fall from a net 24 percent last month is January’s largest sectoral move.
The perception that consumer staples companies are the most overvalued has also accelerated month-on-month.
Japan enjoys sweeter sentiment
The new Japanese government’s policies continue to improve the country’s outlook. Its growth composite indicator now stands at a striking reading of 96.
Against this background, global fund managers are turning more positive. A net 3 percent are now overweight Japanese equities, a sharp reversal of last month’s net 20 percent underweight. The proportion of investors viewing Japan as the most undervalued market increased this month as well, while a growing number see it as having the most favorable outlook for corporate profits.