BOA Merrill Fund Survey: Risk-On As Global Growth Exps Improve

--Biggest EQ Overweight in 6 Months

By Vicki Schmelzer

     NEW YORK (MNI)   - Improved global growth expectations had world investors

diving back into equities and further shunning bonds in October, according to

the findings of Bank of America Merrill Lynch's monthly fund managers survey,

released Tuesday. 

     When asked how the global real economy would develop over the next 12

months, a net 41% of portfolio managers polled looked for faster growth, the

highest level since May, when a net 48% had that view.  

     Back in January, when U.S. Treasury yields were near their peaks, a net 62%

of fund managers polled looked for faster growth. 

     FMS cash holdings fell to 4.7% this month, the lowest level since May 2015.

This is off recent highs of 4.9% in August and July, but well below the October

2016 peak of 5.8%. Allocation to cash fell to a net 28% overweight in October

versus a net 33% overweight in September. 

     On asset allocation, a net 45% of fund managers polled said they were

overweight global equities, the highest in six months. This compared to a net

34% overweight in September and a net 36% overweight in August. 

     A net 60% of portfolio managers were underweight bonds in October, the

lowest allocation in seven months, the survey said. 

     In September, a net 55% of fund managers were underweight bonds, versus a

net 59% underweight in August. 

     The BOA Merrill Lynch survey noted that "just 3% of investors say global

interest rates will be lower in the next 12 months (lowest level in three

years); 82% say interest rates will rise." 

     Looking at gold, a net 3% of those polled in October saw it as undervalued,

versus a net 1% in September and a net 7% in August. 

     In terms of regional equity allocation, a net 21% of of those polled were

underweight U.S. stocks in October, versus a net 28% underweight in September

and a net 22% underweight in August. The 28% underweight seen last month was the

largest since November 2007, BOA Merrill Lynch noted. 

     A net 58% of managers were overweight eurozone equities in October, the

highest in five months, compared to a net 54% overweight in September and a net

56% overweight in August.  

     Global investors trimmed their emerging market equity holdings in October

as views about global yields shifted. 

     Allocation to emerging market equities stood at a net 41% overweight in

October, versus a net 47% overweight in September and a net 39% overweight in

August.  

     In October, a net 23% of fund managers were overweight Japanese stocks,

versus a net 12% overweight in September and a net 20% overweight in August. 

     UK stocks were mildly less shunned this month. A net 31% of those polled

were underweight UK equities in October, versus a net 35% in September and a net

37% in August. 

     On the FX front, a net 20% of portfolio managers  said the dollar was

undervalued in October, versus a net 23% with that view in September, a net 19%

in August and a zero reading in July. The September reading was the highest

since December 2014, the survey said. 

     The top tail risks in October were "Fed/ECB policy mistake," with 24% of

portfolio managers fearing such a "mistake", followed by 23% who fretted "North

Korea," and 22% a "crash in global bond markets. 

     This is in contrast to September, where a net  34% of portfolio managers

said North Korea was the biggest tail risk, net 21% who said "Fed/ECB policy

mistake" and 15% who said "Chinese credit tightening."

     In terms of the "most crowded trades" in October, a net 29% of fund

managers said "Long Nasdaq," a net 18% said "Long US/EU Corporate Bonds, and a

net 16% said "Long Eurozone equities."

     In September, a net 26% of managers said "long Bitcoin," a net 22% said

"Long Nasdaq" and a net 21% said "Short U.S. Dollar." 

     On U.S. tax reform, a net 61% of those polled expect tax cuts in Q1 2018, a

net 15% expect tax cuts in Q4 2017 and a net 13% said tax reform would fail. 

     A net 68% said tax reform would come in 2018 but have "no big impact on

risk assets," a net 13% said reform would fail and "hurt markets," and a net 13%

said "comprehensive tax reform" would be "bullish for risk assets." 

     An overall total of 207 panelists, with $585 billion in assets under

management, participated in the BOA Merrill Lynch survey, taken Oct. 6 to 12. 

     "179 participants with $516bn AUM responded to the Global FMS questions and

87 participants with $182bn AUM responded to the Regional FMS questions." the

survey said.

--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com

[TOPICS: M$U$$$,M$$FI$,M$$FX$]