BoA ML Fund Manager Survey

The Bank of America Merrill Lynch survey of fund managers provides a good guide to what fund managers have been thinking, but not necessarily what they are doing right now – as it covers the previous month.

With the excitement about QE2 there was an uptick in risk appetite in October, following September’s bearishness.  But Bank of America Merrill Lynch warns that “with only a small uptick in growth expectations consensus is betting on short term relief rather than a long term cure.”

Money is still piling into emerging markets (and commodities) with optimism at “stratospheric” levels. This begs the question whether investors are getting carried away, and setting themselves up for a fall, given the threat of capital controls and higher interest rates to curb excessive liquidity.  Friction over currency movements has also entered the list of ‘tail risks’.

Reflecting concerns that quantitative easing is creating a big bubble in bond markets, the level of bond overvaluation reached +71%, the highest level since September 2005.  And intriguingly, ETF liquidity risks are also a growing concern.

Interestingly, fund managers growth expectations suggest we may see a turnaround in the OECD leading indicator. Perhaps we are not about to see a double-dip after all.  Tantalizingly, UK equities may be back in favour.

Meanwhile, sentiment on China may have cooled a little amongst global investors , though investors in Asia are still massively overweight China.

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