Increasing confidence in global economic growth

There is significantly more confidence in global economic growth, according to the Bank of America’s Merrill Lynch Fund Manager Survey, which included a total of 180 managers, managing over US$516 billion.

A recent survey conducted by Baruch College’s Zicklin School of Business and Financial Executives International (FEI) concluded that there is encouraging optimism about U.S. economic recovery and opportunities for businesses among Chief Financial Officers (CFOs).

This latest survey also reveals that there is increasing optimism about the global economy too.

The majority of respondents (72 percent) predict that the world’s economy will improve and recover over the next year, representing a significant rise from 52 percent in July.

Concerns of a “hard landing” in China have somewhat died down since July but over half of the investors still see this as a threat for markets.

Only 32 percent of the respondents think that Chinese economic growth will weaken, compared to 65 percent in July.

Eurozone economic growth

Market sentiment towards economic growth in the eurozone has drastically improved, with 88 percent of European fund managers predicting strong growth over the next year.

High inflation rate expectations have resulted in an increase in underweight in bonds (to 57 percent) and cash holdings have reduced since July but are still at a relatively high rate of 4.5 percent.

There is optimism about future economic growth in the eurozone.

Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said:

“While global growth expectations have risen very rapidly, the good news is that cash levels remain high. Out-of-favor emerging markets offer some enticing opportunities to deploy these balances.”

John Bilton, European investment strategist, added:

“The current earnings season shows global recovery reflected in European companies’ performance. With the eurozone the most undervalued major market by far, optimism on the region’s equities should be sustained.”

20 percent of the respondents said they would overweight the eurozone market on a 12 month view, the highest figure for this measure in over six years. According to the survey, market sentiment would further improve if a European banking union were established.

GEM sentiment remains poor

The results of the survey revealed that 19 percent underweight in GEM equities.

According to the report:

This further weakening compared to last month represents the lowest level recorded in the survey in nearly two years, even though more than three-quarters of specialist fund managers view GEM equities as undervalued.

Nonetheless, some positive GEM stories stand out from the survey. In particular, Korea (broadly referring to South Korea’s Kospi Index) has seen a notable turnaround in sentiment since last month. GEM specialists now rank the market one of their top picks (alongside China and Russia), from a net 21 percent underweight in July.

Need for more capital expenditure

The investors believe that companies should begin investing more to secure sustainable growth. 64 percent of the respondents said that corporates are not investing enough money in their businesses and generate more revenue.

Merrill Lynch might cease to exist

Bank of America recently stated that it is considering close the entity of Merrill Lynch by the end of year, but will keep the brand name going.