Despite a global fear of deflation, Chinese economic slowdown to multiyear lows, massive debt of emerging market countries, overvalued stock markets, timid economic growth around the world, multiyear low oil prices, etc; a new survey out by Bank of America Merrill Lynch says that investors are increasingly returning to the markets. The survey found that 17% of respondents said they were overweight on cash holdings, down from 28% from last month. It was also found that average cash positions fell to the lowest level in six months at 4.5%, down from 5% in December. Right off the bat, we can see that investors are making a general shift away from cash in search of return on their cash.
Equities to remain the top performing asset for the remainder of 2015
Over 56% of the respondents agreed that equities would continue their bull run and remain the top performing asset for the remainder of 2015. Of those respondents, 51% said they are currently overweight in equities, which accounts for the third highest reading that Bank of America has reported in the last year. Turning our focus to US equities, 24% said they remain vested in American stocks, up from 16% in December. However, an overwhelming 75% believe that US stocks are overvalued, the highest percentage since Bank of America began asking investors about the overvalued state of US equities in 2001.
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Focusing on low oil prices and the effects it has had on energy equities, 45% believe the price of oil is undervalued (up from 36% in December), but only 30% say that energy equities are undervalued (up from 21% in December).
Global Economy will stage overall gains in 2015
Surveyors are not as optimistic about the economy, but still 51% of respondents say that the world economy will stage overall gains in 2015, down from December’s reading of 60%. Despite that overall bullishness of the world economy, 72% believe the European Central Bank will start a quantitative easing program sometime during the first quarter.
Despite a 51% reading of world economic growth in 2015, emerging markets continue to fall out of favor with asset managers. Managers are 13% underweight emerging market equities, compared to 1% overweight reading in the December survey. Of the respondents, 17% said they will remain underweight emerging market assets for the rest of 2015 and 41% said they believe China will see their economic growth continue to decrease in 2015.
Overall, there certainly are some mixed signals in this month’s BofA survey. On one hand, cash holdings have decreased significantly, equities are still the favorite and a majority see world economic growth this year. However, we are seeing a continued unwillingness to venture into oil and energy equities, emerging markets, and a weaker China in 2015. The uneven opinion certainly seems to mean that caution could be attitude towards the markets in 2015.