Investors herald new decade with jump into equities

Jan 19, 2010

Bank stocks and Japan benefit from shift in allocations

Investors have used the start of a new decade to boost their equity holdings as confidence grows that the worst of the recession is over, according to new research.

In January asset managers raised their overweight positions in equities to a net 52 percent from 37 percent, finds Bank of America Merrill Lynch’s monthly global fund manager survey. At the same time, cash levels hit an eight-year low, with 7 percent of respondents underweight, while cash balances dropped to 3.4 percent on average, from 4 percent last month.

‘Investors are pro-growth, pro-risk and pro-equities,’ said Gary Baker, head of European equity strategy at Bank of America Merrill Lynch, at a briefing this morning. ‘It’s a positive background as far as equity markets are concerned.’

Baker said the bullishness at the start of the decade was down to a ‘sea change’ in views about the global economy. ‘There are fewer worries there is going to be a double-dip [recession]. You’ve got to start investing on those terms,’ he explained.

Underperforming regions and sectors benefited from the rise in risk appetite. Banks have been unpopular for some time, but over the last month investors went from being a net 28 percent underweight to a lower 17 percent. Japanese equities also received a boost, with investors dropping to a net 10 percent underweight in January, compared with a net 33 percent last month. ‘Investors are trying to play the laggards,’ noted Baker.

The improved sentiment was highlighted by the results of a question asking what investors would most like to see companies doing with their cash flow. Since mid-2008 a majority of respondents have said they would most like cash to be used repairing the balance sheet. But in January the scales tipped, and a majority of investors called for an increase in capital expenditure.

Those favoring an increase in capex rose from 33 percent in December 2009 to 40 percent this month, while those calling for an improvement in the balance sheet fell from 37 percent to 32 percent. Investors asking for cash to be returned to shareholders held steady at 21 percent compared with 22 percent last month.

The global survey was conducted over the period January 8-14, with 209 participants between them holding around $539 bn in assets under management.

By Tim Human