Manager optimism about the global economy remained positive in July, but fears over sovereign debt fueled pessimism about the European economy, according to Bank of America Merrill Lynch’s latest survey of global fund managers.
A net 19% of managers said the global economy will strengthen in the next 12 months, up from a net 10% in May. Meanwhile, fears about sovereign debt continued to grow, with a net 64% of respondents identifying EU sovereign debt funding as the number one tail risk, up from a net 43% in June.
Twenty-two percent of respondents to the regional survey believe Europe’s economy will weaken in the next 12 months, and a net 57% said they are underweight European banks, up from a net 33% in June.
A net 40% of managers said they do not expect another round of quantitative easing; however, a net 48% said QE3 would be necessary if the S&P 500 falls by 20%.
“Our question about QE3 this month shows that investors don’t want policymakers to panic now, but many expected the Fed to apply QE3 if the S&P 500 falls below 1,100,” Michael Harnett, chief global equity strategist at BofA Merrill Lynch, said in a news release on the survey results.
Managers were positive about global emerging markets equities, with a net 33% overweight the asset class, up from a net 23% in June.
Sentiment toward Japanese equities experienced a big swing in July, with a net 2% of managers overweight the asset class vs. a net 22% underweight in June.
The survey of 265 fund managers, overseeing $792 billion, was conducted July 8-14.