Confidence in China on the rise

Global fund managers’ confidence in the Chinese economy has reached a three-year high, according to the November Bank of America Merrill Lynch fund manager survey.

A net 51 per cent of investors polled across Asia Pacific, global emerging markets and Japan believe that China’s economy will strengthen in the coming year. This is the highest reading since July 2009 and is the largest single month increase since February 2009.

The survey also found a net 34 per cent of the panel believe the world economy will strengthen in the next 12 months, the highest level since February 2011, and a monthly rise of 14 percentage points. However, a growing number of fund managers view the US fiscal cliff as the biggest tail risk, rising from a net 42 per cent in October to 54 per cent in November.

Chief investment strategist at BofA Merrill Lynch Global Research Michael Hartnett says: “Momentum has gathered behind the idea that we are on the cusp of a ‘great rotation’ out of bonds and into equities. The only missing ingredient is a resolution to the US fiscal cliff.”

European investment strategist John Bilton adds: “While sentiment within Europe remains weak, rising allocations to global stocks tell us confidence in general is improving. The jump in China optimism shows how fast sentiment can turn around.”

The survey revealed a growing appetite for equities with exposure to emerging markets, especially China.

For a fifth successive month, fund managers have increased allocation to equities while reducing bond positions, with a net 35 per cent of managers overweight equities, compared with a net 25 per cent in October. The results also showed a net 35 per cent of managers were underweight bonds, up from a net 26 per cent last month.

According to the survey, a net 42 per cent of fund managers questioned would opt to sell government bonds to make room for higher beta equities, rising from 42 per cent in October.

Despite the jump in sentiment cash balance only dipped from 4.3 per cent to 4.2 per cent, while cash allocations rose from a net 13 per cent overweight to a net 15 per cent. The survey says these higher cash levels could be, perhaps, another “new normal”.

A total of 248 panelists with £437.3bn of assets under management participated in the survey from 2-8 November.