The MarketsFebruary 18, 2010

Fund Managers Question Global Economic Recovery

The latest BofA Merrill Lynch survey found that fund managers are retreating into cash as skepticism rises over economic recovery in Europe and China.

Reported by Ellie Behling

Surveyed fund managers in Europe expecting the region’s economy to grow in the coming 12 months has fallen to 51% from 74% in January, and the proportion expecting no rate rise by the European Central Bank in 2010 has soared to 45% from 19%. European fund managers exited financial stocks amid fears of exposure to troubled economies. Global investors reported Europe is the region they would most like to be underweight.

Skepticism is also growing about a rate hike in the U.S. this year. In the global survey, more fund managers said they don’t expect a rate hike in the U.S. before 2011 (47%, up from 27%).

Belief in China’s economic growth has plummeted, the survey found. A net 7% of global respondents expect China’s economy to strengthen in the coming 12 months—down from a net 51% of respondents a month earlier and the lowest reading since March.

Shying away from Equities

Fund managers demonstrated slightly more risk aversion, as global cash balances rose to 4% from 3.4% in January, according to the survey. A net 12% of asset allocators are overweight cash, the highest since June and in contrast to a net 8% underweight in January.

Equity positions are down sharply and investors are moving moderately back to bonds, according BofA Merrill said. A net 33% said they are overweight equities, down from a net 52% in January. A net 39% of asset allocators are underweight bonds, down from a net 52% a month earlier.

Investors continue to prefer growth sectors such as tech, energy, and industrials. Commodities, dependent on Chinese demand, have fallen in popularity with a net 10% of global investors overweight the asset class, down from a net 23%, according to the survey.

A total of 200 fund managers, managing a total of $502 billion, participated in the global survey from February 5 to 11. A total of 165 managers, managing $355 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Research with the help of market research company TNS.