“Great Rotation” gains tractionForty-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.
Survey of Fund ManagersAn overall total of 254 panelists with US$754 billion of assets under management participated in the survey from 4 January to 10 January. A total of 190 managers, managing US$586 billion, participated in the global survey. A total of 131 managers, managing US$323 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world. BofA Merrill Lynch Global Research The BofA Merrill Lynch Global Research franchise covers nearly 3,500 stocks and 1,100 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2012 by Institutional Investor magazine; No. 1 in the 2012 Institutional Investor All-Asia survey for the second consecutive year; No. 2 in the 2012 Institutional Investor All-China, All-Europe, All-Japan and All-Latin America surveys; and No. 3 in the 2012 Institutional Investor All-America survey. The group was also named No. 2 in the 2012 Institutional Investor All-America Fixed Income survey and in the 2012 Emerging Markets Equity and Fixed Income survey, covering Emerging Europe, Middle East and Africa. Additionally, BofA Merrill Lynch Global Research was named the No. 1 Global Broker by Financial Times/StarMine, as well as ranked No. 1 in the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street 2012 Analysts Surveys. The group was also the winner of the Emerging Markets magazine’s EM Research Global Award for 2010 and 2011. Bank of America
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