The Bank of America Merrill Lynch monthly fund manager survey (FMS) reports global asset allocators raised their position of Japan to a net 2% overweight exposure up from the net 22% underweight position in June. “This is the biggest positive month-on-month change for the region in the last eight years.”
Of the Japan managers in the survey, 76% believe corporate earnings in the country will improve in the next 12 months, up from 54% in June. In addition, 56% believe Japanese equities are currently undervalued.
As still the most popular region, the increased positioning towards GEM was less dramatic. A net 33% of those surveyed are overweight the region, a rise of 10 percentage points from June.
The monthly survey shows in general asset allocators are lowering bond exposure in favour of equities and commodities. Some 35% of asset allocators were overweight equities in July, up from 27% in June. Allocations show a balance between defensive and cyclical stocks.
On a sectoral basis healthcare stocks have replaced tech has the most favoured sector of global fund managers. Asset allocators continue to be wary of utilities and banks, with those remaining the largest underweight areas, the survey reveals.
“Contrarians should note that extreme sector underweights have been established in EU & US banks and utilities, while the extreme overweights are in US tech and emerging market consumer stocks,” the report reads.
Europe considered biggest risk
Less than 20% of fund managers and asset allocators believe the global economy will strengthen over the next 12 months, but that is up from just 10% in May, the survey shows. The European sovereign debt crisis continues to be their top concern.
While 40% of respondents in the FMS named the European debt crisis as their biggest worry in June, today 64% see it as the number one tail risk to markets.
The FMS is broken into two parts, a global approach and a regional section, looking at how managers view their own markets. In the European regional survey, 22% of respondents expect Europe’s economy to weaken in the coming 12 months, the most negative reading since April 2009.
European managers and allocators are particularly wary of banks right now. More than half of those asked are now underweight the sector, an increase from 33% which were underweight last month. Sentiment on European banks is now at its lowest point since February 2009, Merrill’s says.
A total of 196 fund managers, managing combined US$631bn, take part in the global Fund Manager Survey questionnaire while 149 managers, managing US$409bn, responded to the regional FMS questionnaire.
