Investors Bet on Short-Term Equity Bounce, BofA Survey Shows

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. (BAC) 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 (SPX) has risen for five-straight
weeks and the Stoxx Europe 600 Index (SXXP) 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
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.

To contact the reporter on this story:
Sarah Jones in London at

To contact the editor responsible for this story:
Andrew Rummer at

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