Global investors are betting on a short-term bounce in equities, boosted by expectations that the European Central Bank will engage in so-called quantitative easing by the year end, a Bank of America Corp. survey showed.
The Merrill Lynch Risk & Liquidity indicator, which combines readings of risk appetite, investor time horizons and cash holdings, jumped to 35 this month from 31 in July, the sharpest increase since February. Allocations in euro-area equities climbed to the highest since May 2011.
"The promise of policy stimulus has erased fears of global recession," wrote BofA strategists Michael Hartnett and Gary Baker in the report to clients dated today. "But high cash levels, cautious equity allocations and disdain for banks suggest investors would prefer to bet on a short-term bounce rather than a major inflection point in the investment cycle."
The Standard & Poor's 500 Index has risen for five-straight weeks and the Stoxx Europe 600 Index has climbed for 10 amid speculation central banks from China to the U.S. will announce further stimulus measures to support growth. ECB President Mario Draghi has pledged to defend the euro and this month said the bank may buy government debt in conjunction with bailout funds.
Global growth expectations among the survey's 173 respondents, who together manage $491 billion, rose by the most since early 2009 while their outlook for Chinese growth is at the highest level since November 2010. The survey was conducted between Aug. 3 and Aug.9, before the release of data that showed a collapse in Chinese export growth in July and imports and new yuan loans that trailed estimates.
Expectations the ECB will begin a round of quantitative easing jumped in August, with eight of 10 investors now expecting the central bank to engage in bond purchasing before year end. That coincided with an "aggressive" scaling back of investor underweight holdings in euro-area stocks, according to the report.
A net 13 percent of respondents are now underweight the region's equity market, down from 26 percent in July. Investors remained overweight U.S. and emerging-market stocks and underweight the U.K. and Japan.
Overall, investors moved overweight in equities for the first time since May with a net 12 percent now owning more stock than a represented in indexes, the survey showed. That's still below its 10-year average of net 25 percent.
Cash holdings fell for a second month with a net 25 percent now overweight the asset class versus 33 percent in July, while exposure to real estate investment trusts surged to the highest level since January 2007, driven by a combination of high yield and a recovery in U.S. real estate.
-- By Sarah Jones