In a sign of improving US and Chinese economies, the majority of global fund managers are optimistic towards equities in the first quarter of 2013, according to the latest Fund Managers’ survey by HSBC.
Seventy five per cent of fund managers are overweight towards equities this quarter, up from 40 per cent in the final quarter of last year.
Such results are significant, head of wealth management at HSBC, Mike Danby, said.
“I think that in terms of shifts in quarter to quarter, the pick-up in equities is quite significant,” Mr Danby told Investor Weekly.
Importantly, Mr Danby points out, not one fund manager is underweight on equities, with a quarter of fund managers holding a neutral outlook, compared with 50 per cent in the fourth quarter of 2012.
While Mr Danby is unable to say whether he expects the positive outlook to continue, he holds high hopes.
“The key thing is that there is nothing more relevant than the here and now – we’ll just have to wait and see what the next quarter will bring,” he said.
On the back of a resilient United States economy, 75 per cent of fund managers say they are overweight towards North American equities. This optimism represents a 15 per cent rise on the same sentiment since the fourth quarter of last year.
This encouraging outlook is mirrored in the Asia Pacific region (excluding Japan) with 43 per cent of respondents holding a bullish view towards equities and 50 per cent holding the same view towards China, with increasing signs pointing to the bottoming-out of China’s economy.
These sentiments are an increase by 10 per cent and 7 per cent respectively, compared with the fourth quarter of 2012.
Mr Danby believes such views are a result of a fundamental shift in thinking.
“I think this is a result of more optimistic signs in the US – we’ve seen unemployment reduce, manufacturing improve and stabilising key data,” he said.
Manufacturing data points have also improved in China, along with its GDP, according to official data released last week.
China’s GDP has grown 7.8 per cent in the 12 months to December, compared to a rise of 7.4 per cent in the 12 months to September.
“Our expectation is that China will show a robust 8.6 per cent GDP growth in 2013,” Mr Danby said.
But how much of this is genuine bullishness towards equities, and how much is because the low interest rate environment is driving investors away from more defensive assets?
“Low interest rates definitely play a role,” Mr Danby said.
“There’s also been a strengthening in views towards emerging market bonds,” he added.
“People are still looking to the conservative option, which is good, because there’s balance.”
With the market seeing little room for interest rates to further slide, no fund managers hold a positive outlook on bonds or cash for the first quarter of this year.
However, Mr Danby said that the bearish sentiment towards cash next quarter “underlines potential opportunities in the market”.
“Global interest rates should stay low for some time – the next two years, or possibly longer,” he said.
“There’s an opportunity to value play.”
High-yield and emerging market bonds remain in favour, with 71 per cent and 63 per cent of managers maintaining an overweight view on the two respective asset classes.
According to the report, the extended low interest rate environment has made the search for yield more acute.
Meanwhile, half of the respondents hold a bullish view towards Asian USD bonds, with no fund manager holding an underweight view, given the strong fundamentals relative to major developed economies, according to the survey results.
