Easing boosts managers’ forecasts

Global fund managers have dram­atically raised their growth and inflation forecasts in the wake of a second round of quantitative easing (QE2), according to November’s Bank of America (BofA) Merrill Lynch fund manager survey.

The net percentage of global managers forecasting stronger global growth over the next 12 months jumped from 15% in October to 35% in November. Meanwhile the proportion of managers expecting inflation to rise over the next year surged from 27% to 48%.

Gary Baker, the head of European equities strategy at BofA Merrill Lynch Global Research, says this month’s survey is “a charter of the benefits of QE”. (article continues below)

“This month’s survey shows global managers to be at their most pro-bullish, pro-risk and pro-growth levels that we have seen all year,” he says. “The levels of optimism are back to those levels last seen in April last year.”

In November a net 41% of fund managers surveyed were overweight in equities, up from 27% in October, while exposure to bonds was down from a net 24% underweight in October to a net 36% in November.

Baker says: “Following QE2, we have witnessed a capitulation into risk assets to a degree that history suggests should prompt a concern.”

Baker points out that cash levels in November fell to 3.5%, down from 3.8% last month. “Cash levels are at dangerously low levels,” says Baker. BofA Merrill Lynch data stretching back to 2004 shows that five out of the six times cash levels have hit 3.5% or lower there has been a negative reaction in equity markets in the next four weeks.

Meanwhile, the number of global managers overweight in cash has fallen to a seven-year low as more focus is placed on the short term, according to the survey. A net 30% of managers say their time horizon is shorter than normal, up from 25% last month.

The survey also revealed that the perception among managers that monetary policy is “too easy” rose to 45%, its highest level since 2004.

Only one in five managers expects the Federal Reserve to raise interest rates before the fourth quarter of 2011.

In terms of regions, Baker notes that despite sovereign debt concerns the eurozone saw the biggest positive change. Asset allocators increased their position from a net 3% overweight in October to a net 15% overweight in November, the highest level since 2004.

Britain was the only region to see a fall in asset allocation in Nov­ember, with investors increasing their underweight stance to 6% from 15% last month.

Some 218 managers running $634 billion (£395 billion) of assets participated in the survey, conducted with TNS, a market research company, from November 5-11.