Japan, Germany increasingly popular among global fund managers - Merrill survey
Tuesday, September 13, 2005 1:45:35 PM
afxpress.com
LONDON (AFX) - Japanese and German assets are becoming increasingly popular among fund managers, though at a time of rising worries about global growth, a survey by Merrill Lynch found
Investors' bullishness towards Japan was the most striking aspect of Merrill's latest survey of fund managers, which was conducted last week, just before the resounding victory for Junichiro Koizumi's LDP Party in Sunday's election. "Merrill Lynch's survey of fund managers for September shows just how upbeat fund managers were on Japan's equities ahead of last weekend's general election," the survey said
The win is viewed as providing Koizumi with a mandate to implement his planned reforms. The Japanese Prime Minister had called the snap elections after parliament failed to pass his key bill for post office reform
Japan emerges as the region in which the outlook for corporate profits is viewed most favourably, where the quality of earnings is improving, and whose currency is seen as the most undervalued, the survey found. A net 37 pct of fund managers rank Japan number one for corporate profits, more than a quarter view Japanese equities as the most undervalued by region, while a net 46 pct of asset allocators describe themselves as overweight on the country
"Investors' preference for Japanese rather than US equities is one of the most extreme we've seen," said David Bowers, global investment strategist at Merrill Lynch
Preference for Japan could tally with higher inflation expectations, given the recent rise in energy prices and given that Japan tends to benefit from a strong inflationary environment. However, it sits uneasily with mounting growth concerns and could come under pressure if a faltering global economy undermines companies' abilities to pass on higher costs, Bowers noted
Such fears are not unwarranted moveover, given that the survey -- conducted in the aftermath of the Katrina hurricane and amid soaring oil prices -- reveals increasing concerns about global growth. A net 26 pct of fund managers now expect the global economy to weaken over the next 12 months, a sharp swing from the net 14 pct who, just a month ago, expected the global economy to grow over the next year
Accordingly, investors are less certain that interest rates will have to rise, with a net 69 pct now expecting short-term interest rates to rise within a year, down from 78 pct last month. What respondents believe to be a 'neutral' level for US interest rates remains at 4.0 pct, however
Meanwhile, just as Japan looks to be outperforming on a global level, on a European level German assets are increasingly popular, buoyed by the prospect of political change and an increased pace of reforms following the upcoming elections, the survey found
"Just as pre-election Japan enjoyed a booming equity market, pre-election Germany is proving to be the equities darling of Europe," it said
Almost two thirds of fund managers on the European regional panel surveyed by Merrill describe themselves as overweight on German equities, while only 14 pct are underweight on the country as a whole
By contrast, the UK is viewed increasingly negatively, with a net 47 pct of fund managers describing themselves as underweight on UK equities, the most negative reading this year, Merrill said
Bowers commented that it is "very rare" to see German equities outperform the UK at a time when oil stocks are outperforming. The finding shows just how optimistic people are about the pace of reforms in Germany and about the benefits a government led by Angela Merkel -- head of the centre-right CDU party -- would bring, he said
"This tells us a bit about the premium being applied to German restructuring at the moment," Bowers noted |
