Merrill Lynch(ed): Global Fund Manager Survey

Bank of "Amerillwide" (or Countrywide Lynched America) is out with Global Fund Manager Survey today. "The picture" looked like this in February. Key conclusions from the new February survey:

Global growth expectations surge. . . and broaden
The April FMS prints the most optimistic reading on global growth since 2004. A net +24% of investors believe the global economy will strengthen over the next 12 months. China remains the principal catalyst but growth optimism has now broadened out to all regions, including previous laggards Europe and Japan.

Risk appetite rallies as bank fears ease
Our risk appetite indicator climbed to a 12-month high. Asset allocators are less pessimistic on equities, sharply cutting their underweight to 17% from 41% in March. Overweights in bonds were trimmed. Cash overweights fell to net 24%, the lowest since late-2007, lowering average cash balances to 4.9% from 5.2%. Even hedge funds raised net equity exposure to an 8-month high of 25%.

Emerging markets the preferred vehicle to play catch up
Playing catch-up with the rally in equity markets, global investors massively raised GEM exposure (to +26% from +4%) to augment a longstanding US overweight (+14%). The Eurozone (-29%) and Japan (-36%) continue to be shunned.

Bank sentiment & China optimism force cyclical rotation
The sharp rally in banking stocks in recent weeks has been met by a dramatic reduction in U/W positions on global banks to 26% from the record 48% in March. Better sentiment on banks and growth optimism has unlocked a classic sector rotation out of staples, telcos, pharma and utilities into industrials, consumer discretionary and industrials. Technology is now the most preferred global sector.

Apocalypse averted: reluctant, not euphoric, bulls
Apocalyptic bearishness in the March FMS aided & abetted a major equity rally. The April FMS shows investors believe the worst is over and extreme defensive positions have been cut. But there is no bull market euphoria: PMs remain underweight risk, equities & cyclicals and cash levels remain high – as such the survey supports a "grind higher" view. Bulls now require support from April/May G7 economic data. The bears are reliant on China and banks disappointing.

Well, China and banks?