Global investors have a restored appetite for risk amid greater optimism over the outlook for profits and the economy, according to the BofA Merrill Lynch Fund Manager Survey for November.

A net 47 per cent of the global panel expects the economy to strengthen in the year ahead, a rise from a net 33 per cent in October, it said.

Investors have expressed similar positivity over profits – a net 42 per cent say that global corporate profits will improve in the coming year, up from a net 27 per cent last month.

They have signalled that their optimism has been translating into action over recent weeks. In October, a net 16 per cent of the panel said they were taking lower than normal levels of risk.

This month, a net two per cent are taking above-normal risk. The proportion taking out protection against a sharp fall in equities in the coming three months has fallen to a net -39 per cent from a net -35 per cent.

The asset allocators have shifted out of cash and increased their allocations to equities. A net 13 per cent of respondents to the global survey are overweight cash in November, down from a net 27 per cent in October.

The proportion of asset allocators overweight equities has risen by 12 percentage points to a net 46 per cent. Hedge funds have also increased their net allocations to equities – 43 per cent of surveyed hedge funds are net long equities, up from 35 per cent one month ago.


Michael Hartnett, chief investment strategist, said: “Deflation might be in the back of investors’ minds, but taking on risk, especially in equities, in Japan and in the dollar is at the forefront of their thinking.”

Manish Kabra, European equity and quantitative strategist, said: “European stocks were recently boosted by the best earnings season in three years. However concerns over longevity of growth and deflation continue. Three wise themes of yield, quality, and large cap are the best places to hide in European stocks.”

Meanwhile, investors have marked out deflation as the biggest risk to the market’s upward trajectory. Twenty-nine percent of the global panel said that eurozone deflation is the biggest “tail risk,” ahead of geopolitical crisis (21 per cent).

Furthermore, asked in a new question what is the greatest risk in 2015, 71 per cent opted for deflation over inflation.   

But while deflation is a concern, they do not appear to see it as the most likely outcome. A net 35 per cent of investors have said that they expect global core inflation to pick up over the year ahead.

An overall total of 214 panelists with $569 billion of assets under management participated in the survey, where a total of 166 managers, managing $431 billion, participated in the global survey, while a total of 111 managers, managing $252 billion, participated in the regional surveys. - TradeArabia News Service