Investors are channeling most of their renewed risk appetite into global emerging market equities in the wake of an expected second wave of quantitative easing, according to the BofA Merrill Lynch survey of fund managers for October.
The level of risk that investors are taking in their portfolios rose more sharply than in any month since April 2009.
Hedge funds continued to add to their net equity exposure. The proportion of asset allocators overweight equities nearly tripled to a net 27 per cent from a net ten per cent in September, while they extended underweight positions in bonds.
The proportion of portfolio managers overweight cash fell to a net six per cent from a net 18 per cent.
The vast majority of this movement into equities was into global emerging markets. A net 49 per cent of asset allocators are overweight global emerging markets, a monthly rise of 17 percentage points.
Appetite for US, eurozone and Japanese equities remained stable while the panel became less bearish about the UK.
Portfolio managers are more optimistic about China’s growth over the coming year. A net 19 per cent expects China’s economy to strengthen in the next 12 months, up from a net 11 per cent in September and 38 percentage points above August’s level.
“European stocks, especially in cyclical sectors, are riding on the coat tails of QE expectations with as yet no sign of a pick-up in underlying macro fundamentals,” says Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research.
As well as the dramatic moves into emerging markets, evidence of a broader pick up in risk appetite is apparent in October’s survey. Demand for commodity exposure recovered with a net 17 per cent of the panel overweight in October, compared with a net four per cent the previous month.