Fund Manager Survey: Global Economy May Wane but Recession Will Be Avoided

(August 17, 2011) — Manager optimism about the global economy has declined significantly in August, a survey by Bank of America Merrill Lynch has revealed.

The firm’s latest monthly study — conducted August 5-11 in a survey of 244 fund managers overseeing $718 billion — revealed that a net 13% of managers believe the global economy will experience weaker growth compared with a net 19% in July who were confident the economy would improve.

“Flows out of equities into cash have reached capitulation levels, especially in the US but it’s significant that a revival in optimism towards China has survived the global correction,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research, in a statement. “Investors are waiting for convincing, coordinated action from governments before recommitting their cash to equities,” added the firm’s Gary Baker.

Meanwhile, a net 42% of managers said a global recession is still unlikely in the next 12 months.

Regarding US sentiment, asset allocators have reduced their positions in the US more aggressively than in any other region and at the sharpest rate the survey has ever recorded. According to the study, asset allocators have moved slightly underweight US equities.

The eurozone, however, seems to have avoided the global equities sell-off, the report found. “The panel remains underweight eurozone equities, but the net percentage underweight the region has fallen to 15% in August, from 21% in July. Within Europe, however, the story has darkened. A net 71% of the regional panel expects the European economy to weaken, up starkly from a net 22% in July; although, a strong majority rejects the idea that Europe will go into recession.”

The study also revealed more positive views toward China. A net 11% of managers in Asia believe China’s economy will weaken, down from a net 24% in July.