European sovereign-debt crisis seen as biggest risk to economy
By Simon Kennedy, MarketWatch
LONDON (MarketWatch) — Fund managers have boosted their stockpiles of cash and switched their investments into defensive sectors, while most see little prospect of a third round of quantitative easing from the Federal Reserve, according to a monthly survey released Tuesday.
The European sovereign-debt crisis remains the single biggest risk to the global economy, but fund managers “remain immune to gold-fever,” seeing the precious metal as more overvalued than at any time since the end of 2009, the survey by Bank of America Merrill Lynch found.
Overall a net 18% of respondents to the survey were overweight cash, compared with 6% the previous month. The net percentage of respondents overweight in equities dropped sharply to 27% from 41%, according to the survey, which polled 282 panelists with a combined $828 billion of assets under management.
The only industries that fund managers increased their exposure to were the defensive utilities and pharmaceuticals sectors, while insurance stocks saw the biggest fall in sentiment.
A similar picture of risk-reduction was seen among hedge funds, which cut their gearing levels to 1.27 from 1.53 a month earlier.
“Investors are scaling back risk, but rather than capitulating, they are simply moving to neutral positions in equities, bonds and cash,” said Gary Baker, head of European equities strategy at Bank of America Merrill Lynch Global Research.
Growth expectations stabilize
On the economic front, growth expectations have broadly stabilized after sharp falls in the last couple of months, but the backdrop isn’t seen as weak enough to warrant another round of stimulus from the Federal Reserve — overall, 64% of respondents said they don’t expect the Fed to announce a QE3 program.
There was also no rush for gold. A net 37% view the precious metal as overvalued — the most since December 2009.
Europe’s debt crisis was seen as by far the biggest risk to the economy — named by 43% of respondents as the top worry, compared with 36% a month earlier.
Not surprisingly, there was also a drop on confidence in European equities, with a net 15% of respondents underweight, compared with 1% in May.
Simon Kennedy is the City correspondent for MarketWatch in London.
