Investors turn to US and emerging markets, shunning Europe

Fund managers are moving their assets into emerging market and US equities as 72% expect a eurozone recession in the next year.

Commodities also picked up the pace as there was renewed confidence in energy and materials investment at the start of November, driven by positive sentiment towards emerging markets.

However, regional gloom didn’t taint the global outlook, as investors are feeling more confident that a possible recession will be confined to the eurozone. Nearly a third (31%) of fund managers surveyed said the world economy will avoid a recession, up from 25% in October.

The figures come from the latest Bank of America Merrill Lynch survey of 258 fund managers, conducted from 4-10 November. 

Gary Baker, head of European equities strategy at Bank of America Merrill Lynch Research, said: ‘European growth concerns are more intense but sentiment looks to be close to rock bottom – unless Europe’s problems spread to the rest of the world.’  

Equities were also back on the menu this month as fund managers increased their position to 5% underweight compared with their benchmarks, up 2% from October.

Growth was seen in emerging markets as investors believe that China’s economy will slow to a ‘soft landing’, with economic growth of 7% or better next year, rather than the much-feared 'hard landing' scenario.

Fund managers increased their holdings in emerging markets to 27% overweight, up from 9%.

Investment in US equities more than tripled in November as investors were 20% overweight, compared with 6% in October. However, most fund managers expect US debt to be downgraded in the next two years.

Despite the negative outlook on the eurozone economy investors only reduced their October position in the region’s equities by 1% to 30%.