Well, the key findings of the monthly "Global Fund Manager Survey", that was published yesterday:
The improvement in global economic sentiment continued this month with particular focus on the US as investors responded to the extraordinary monetary response seen from authorities. Investors expecting a weaker global economy over the coming year more than halved to 24%, from 65% in October. This also played to a moderation of deflation expectations and a sharp rise in long term interest rate expectations: a net 35% of respondents now expect higher long-term yields over the next 12 months (versus only 3% in November).
Improving sentiment led to a modest improvement in profit expectations with a net 55% expecting further deterioration, up from a November low of 71%. The US saw a sharp increase in optimism with only 27% of US PMs now expecting further earnings deterioration compared to 70% last month and a peak of 85%.
A more sanguine picture on the economic and profit outlook is yet to be reflected in any shift in investment positions. The ML (Merrill Lynched) Risk & Liquidity composite indicator has recovered back to September levels but cash levels remain high at 5.3% and asset allocators added to already overweight cash holdings (net 44% o/w).
Allocators are more overweight cash, less overweight bonds and have scaled back regional equity exposure. A net 46% see bonds as overvalued, versus 30% seeing equities as undervalued. Somewhat surprisingly in light of improving profit sentiment, US equity exposure has been cut in favour of GEM and Japan, with China a particular focus. Europe is still seen as the least attractive region, perhaps reflecting a more hesitant government policy response.
Pharma, telecoms and staples remain the three sectors that investors are camped out in with only marginal trimming of positions. Utilities were cut to join tech and energy as neutrally positioned. Pessimism on banks is still plumbing new depths and despite promised pipelines of infrastructure projects, industrials are unloved.
Sterling is now seen as undervalued (net 7% of investors) for the first time since this question began in October 2002. The Euro is viewed as the most overvalued currency, followed by the Yen (a complete reversal of the view back in Oct).
An end to the bear market in conviction requires more conclusive evidence of policy success is reviving US and China growth expectations and/or a genuine reallocation out of bonds. In this regard the pure contrarian global sector trade would be out of US pharma into European/UK banks.
Grain of salt ...
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