A recent Bank of America survey revealed that investor fears regarding the looming fiscal cliff have eased up, allowing confidence in a recovering economy to extend into the new year.
Approximately 40 percent of investors expect the global economy to grow stronger in the next year, a six percent increase month-on-month and double the percentage reading from two months ago. Additionally, only 47 percent of investors see the fiscal cliff as the biggest risk, down from 54 percent last month. Despite the decrease, however, the fiscal cliff remains a chief concern.
Optimism concerning the growth of the Chinese economy has jumped to 67 percent, the highest level recorded by the survey, up from 51 percent in November.
“The bulls are back in China, while policymakers elsewhere put bears onto the back foot,” Michael Hartnett, the chief investment strategist at Bank of America Merrill Lynch Global Research, said. “If the bulls are to claim a decisive victory, we need hard evidence that the economy is reaccelerating.
Thirty-eight percent of asset allocators are overweight emerging markets equities, while the number of asset allocators overweight U.S. equities has fallen since last month. The percentage of asset allocators overweight Eurozone equities has risen to seven percent, up from one percent in November.
“Growth expectations and positioning are converging to mid-range levels, but many still think earnings expectations are too high,” John Bilton, a European investment strategist, said. “When these concerns subside, it’s likely that cheap valuations of European stock will attract global fund managers.”
The outlook for corporate profit performance has improved for the third month in a row, and more investors are pushing firms to raise capital expenditure. Eleven percent of investors expect corporate profits to improve in coming months.
Additionally, 64 percent of survey respondents believe international firms are under-investing, the highest percentage in the history of the survey and an increase from 59 percent month-on-month. Thirty-eight percent of investors expect global emerging market equities to generate the most corporate profits.
Investors also reported better liquidity conditions, with 23 percent ranking liquidity conditions as “positive,” up from 13 percent in November.