Investors end 2012 with rising optimism, survey shows

A net 67 percent of investors see China’s economy strengthening while fiscal cliff remains chief concern, finds fund manager poll by BofAML

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Optimism over the Chinese economic outlook jumped in December, setting up investors for an optimistic start to 2013, although the looming US fiscal cliff still remains a significant risk, according to the Bank of America Merrill Lynch (BofAML) global fund manager survey.

Investor optimism on Chinese economic growth jumped to a record high for the survey, with 67 percent of investors predicting that China’s economy will strengthen in the coming year, an increase from 51 percent a month ago, according to the survey.

The survey also shows that the US fiscal cliff, currently the center of debate and negotiation between US President Barack Obama and the Republicans in Congress, is considered the most significant ‘tail risk’ on the horizon by a net 47 percent of investors.

While that figure is down slightly from a net 54 percent of investors in November, some 60 percent of survey respondents say the fiscal cliff is not priced into equities (about 30 percent say it is).

Twenty-two percent of investors cite the eurozone sovereign debt crisis as the most important ‘tail risk’, followed by a series of risks, from the Chinese real estate market to commodity prices to conflict in the Middle East, according to the survey, which includes 255 panelists with $664 bn of assets under management and was conducted between December 7 and December 13.

‘The bulls are back in China, while policy makers elsewhere put bears on the back foot,’ says Michael Hartnett, chief investment strategist at BofAML, in a release. ‘If the bulls are to claim a decisive victory, we need hard evidence the economy is reaccelerating.’

The survey also shows increasing net exposure of hedge funds to equities, which reached 45 percent in December, the highest since August 2006.

A net 11 percent of investors predict corporate profits will improve in the coming 12 months and the percentage of investors predicting worsening corporate margins has fallen to a net 27 percent in December from a net 33 percent in November.

A net 23 percent of investors also describe current liquidity conditions as ‘positive’, an increase from 13 percent in November and the third straight monthly rise.

Cash allocations fell to a nine-month low of a net 12 percent overweight in December from a net 15 percent in November, and bonds fell to a net underweight of 41 percent, an eight-month low, according to the survey.