Markets: Big Global Investors Get Wary

Blame Spain?

The bulls of January through March have gone a bit shy, judging by the latest results from the Bank of America Merrill Lynch Survey of Fund Managers for April.

The monthly survey shows that fund managers have boosted their portfolio cash positions since March, reducing risk and lowered expectations for global growth on rising concerns over Europe's finances (really it's Spain, then Italy).

The reservations about global growth though are at odds with the latest forecasts from the IMF which are a bit more positive than they were in January and last September, showing stronger growth in the US and a rebound next year in all regions.

But despite the new found caution, the US remains the preferred stockmarket for big global investors.

And, encouragingly, big fund managers are more optimistic about China's outlook than they have been for more than a year, a point that should mean an improved performance from markets like Australia and the UK which are dominated by resource stocks.

We probably saw this on Wednesday and yesterday, following other markets higher, and more upbeat commentary about growth, China and share prices.

And there seems to be another easing of Chinese monetary policy about to happen, according to official news report in Beijing yesterday.

The new found caution among fund managers showed up in the April survey with a net 24% of global asset allocators saying they are overweight cash this month, up from just 6% in March.

Debt concerns in Europe have "risen sharply" the survey showed, with 54% of the panel saying that European Union sovereign debt funding is the "number one tail risk"--that is up from 38% in March.

That's the problems in Spain, which eased a bit this week with a successful debt action.

But fund managers worry that Spain could generate more pain.

A net 63% of the panel predicts that Spain is likely to "provide a negative surprise" in 2012, compared with 50% who said the same last month.

Close behind Spain is France, with a net 56% of the panel saying France could provide a negative surprise, up from 52%.

(That's because of the Presidential elections in the next two months could see incumbent, Nicholas Sarkozy defeated by the Socialist candidate, Francois Hollande.)

A total of 256 panelists, collectively managing $706 billion in assets, participated in the survey taken between April 5 and April 12 (before the IMF's latest World Outlook and the solid market performance this week).

"The survey highlights that while investors' primary concern in the EU is Spain's economy, the outcome of and uncertainty around France's elections is also figuring high in their decision making," said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.

Click here to find out more!

Overall, fund managers have reduced their share holdings, with a net 26% overweight equities, down from 33% in March.

The US is the preferred stock market, which is despite fears about a weak first quarter earnings season which now seem to have been misplaced.

(But will be tested by Apple's report next Tuesday night, our time.)

Many global investors have increased allocations in US equities in April or expressed intentions to do so.

A net 27% of global asset allocators are overweight US shares, almost double the 14% in March.

But as confident as they are about the US market, fewer fund managers see the US economy strengthening in the rest of 2012.

Some 8% said the US economy will get stronger in the coming year, down sharply from the 29% last month, a significant change in belief.

Fund managers were less optimistic about the global economy after four consecutive months of increasing optimism for growth.

A net 20% of the panel said the global economy will strengthen in the coming year, down from 28% in March.

In Europe, investors have turned bearish, with a net 24% predicting the region's economy will deteriorate in the coming 12 months.

A month ago, they were evenly split on the economic outlook (that's because of the emergence of Spain as the focal point of the latest tensions in the area).

For the first time since November 2010, investors are net positive on China's economy, according to the survey.

A net 4% of the regional panel expecting China's growth to improve in the coming year. A month ago, 9% predicted deterioration.

Overall, "investors have moved to a more neutral position after positive shifts in sentiment and risk taking in the first quarter," said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.

"We believe investors will retain a sense of caution throughout the second quarter."

And the old perennial of fund managers, another round of easing by the US Federal Reserve? Well, big fund managers remain believers.

Only 36% of the global panel don't expect further easing from the Fed, down from 47%, while 44% of investors expect the ECB to engage in more direct large-scale easing before the end of the third quarter, up from 34% taking that view a month earlier.