Risk (Even Further) Off as Investors Await Government Stimulus

Investors are sitting on their hands and waiting for governments to take action to kick-start global economies, a fund manager survey has revealed.

(May 16, 2012)  --  Large investors have retreated further into their shells this month as they await action from governments around the world to kick-start economic growth and prevent collapses in the Eurozone, a survey has shown.

Over a third of investors responding to the monthly Bank of America Merrill Lynch fund manager survey said they were taking lower than normal risks in their portfolios. This was a significant shift from around a fifth of investors agreeing with this statement last month - which was already low.

The BoA Merrill Lynch Risk and Liquidity Composite indicator, which measures market sentiment, has fallen below its previous historical average while asset allocators have moved even further out of equities, favouring cash and bonds.

Gary Baker, Head of European Equities Strategy at BofA Merrill Lynch Global Research, said: "Investors have eradicated hopes of growth and inflation that had built up in the early months of the year - and they are looking to policy makers for stimulus."

The proportion of global investors that responded to the survey indicating that global fiscal policy was 'too restrictive' has more than doubled to a net 23% from a net 11% in April. The survey took place from May 4 to May 10, after elections in France and Greece. These produced the first French socialist President in 20 years and another meltdown in the Hellenic Parliament.

Investors are looking to governments for greater economic stimulus - just 15% of respondents thought the global economy would strengthen over the next 12 months, down from 28% holding that view in February.

This view was further strengthened by a lack of appetite for commodities - this month saw the lowest holding in seven months. A net 2% of investors said they were underweight this asset class in May, compared to a net 8% indicating they held overweight positions last month.

One area that has seen resurgence in confidence however, is China. From a net 4% expecting a stronger Chinese economy a month ago, a net 10% now thinks the Asian giant has regained its momentum.

More broadly, emerging markets remained favourites with investors - almost a third of investors - 32% - said these regions were where they most wanted to be overweight, up from almost a quarter last month.

The BoA Merrill Lynch survey interviewed 234 investors with assets totalling $526 billion.

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