By Nicholas Paler | 14:03:06 | 18 May 2010
Fund managers around the world are shunning European stocks and piling into cash following the debt crisis which has plagued the continent, Bank of America Merrill Lynch (BoAML) has said.
In its latest survey, BoAML said debt uncertainty in Europe had caused the biggest one month fall in risk appetite since 2003, with the average cash balance rising almost 1% from 3.5% in April to 4.3% in May despite the multi-billion euro rescue package designed to keep the eurozone intact.
A net 33% of managers also believe the outlook for corporate profits looks most favourable in the US, while a net 41% are shunning eurozone equities, making a spread of 74% – the widest level since July 2003.
Gary Baker, head of European equities strategy at BoAML, said managers were fleeing European equities because of ongoing sovereign debt worries. ‘Investors have capitulated on Europe, beaten down by sovereign debt concerns and faltering growth expectations,’ he said.
Managers revealed they were heading for the safety of the US marketplace to avoid Europe, and in particular the dollar. BoAML said: ‘66% of the panel expects the dollar to appreciate the most of the reserve currencies.’
While fund managers are backing the dollar, they are downbeat on the euro. A net 46% of the 202 fund managers interviewed said they expected the euro to depreciate, climbing from a net 23% last month.
In emerging markets, the China story is also becoming less popular. A net 29% of global emerging markets fund managers now expect the Chinese economy to weaken over the next 12 months, a big shift from the net 5% who last month were backing it to strengthen in the coming year.