(May 14, 2013) — Investors have returned to buying up bonds, as inflation, growth, and interest rates show no sign of picking up in the near future.
Respondents to the monthly Bank of America Merrill Lynch (BAML) survey said they had dumped commodities and emerging market equities due to their number one economic fear being a hard landing in China.
The proportion of global investors who said they were overweight emerging market equities plummeted to a net 3% from a net 34% in March.
Inflation worries also dissipated this month as only a net 30% of respondents expect the global core figure to rise over the coming year – down from a net 45% last month. Accordingly, the proportion of investors expecting short-term interest rates to rise has fallen to a net 14% from a net 32% in April, the bank said.
Data from fund monitor EPFR showed bond funds received more investor inflows than their equity counterpart for the second straight week by the end of Wednesday. “Overall flows into bond funds totalled $13.07 billion while equity funds, helped by the first retail commitments in three weeks, absorbed a net $10.49 billion. Money market funds took in $21.67 billion, their biggest inflow since early January,” the data monitor said.
More generally, investors told BAML they wanted better outcomes from their equities investments. Share buy-backs or dividends were being demanded from the large piles of corporate cash amassing on balance sheets, respondents said – or they would expect large capital expenditure programmes.
Two regions won out for investors this month: Japan and Europe.
The Japanese central bank’s efforts to fuel growth and weaken its currency have sufficiently wooed investors. “Allocations to Japanese equities are at their highest since May 2006 with a net 31% of global asset allocators overweight Japanese equities. That is up sharply from a net 20% overweight in April,” BAML said.
A net 44% of global investors said the outlook for corporate profits was more favourable in Japan than in any other region – the most bullish outlook captured by the survey since November 2005.
Fears of a European collapse have waned, the bank’s survey showed. A net 24% of European investors said they thought Europe’s economy would strengthen in the coming year, up from a net 19% in April. A net 17% foresaw earnings improving in the next 12 months, up from a net 14% last month.
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