Money Managers of $543 Billion Are Least Optimistic Since Brexit

(Bloomberg) -- Investors with $543 billion of assets are the least optimistic about global growth momentum since the U.K. voted to leave the European Union, according to Bank of America Merrill Lynch.

A net 5 percent of money managers project the international economy to be stronger in the next 12 months, the lowest level since June 2016, according to the bank’s April survey. Underscoring the diminished outlook, earnings expectations have peaked, according to respondents.

As reporting season gets underway, it’s expected to be the best in seven years, but more investors are backing their caution with defensive positioning. Allocation to stocks fell to an 18-month low of 29 percent -- down from a 41 percent overweight in March -- while the average cash balance climbed 0.4 percentage point to 5 percent, 0.5 percentage point above the 10-year average.

Ebbing optimism on the global economy strikes a chord with a run of recent data showing cooling growth in the euro area, spurring investor fears about synchronized global output. On Tuesday, the ZEW survey of German investors saw a big drop in expectations for economic growth in the region. In the U.S., the Empire State Manufacturing Survey this week showed that manufacturers had become significantly less optimistic about the future six months out.

The International Monetary Fund on Tuesday left its forecasts for global growth this year and next at 3.9 percent but projected expansion will fade after 2020 as central banks tighten monetary policy, the U.S. fiscal stimulus subsides, and China’s gradual slowdown continues.

“The bulls have been silenced but not defeated, evidenced by increased cash allocations and low expectations of global growth and profits,” said Michael Hartnett, the bank’s investment strategist. “But true bull capitulation is absent, with most investors saying the peak in the stock market is still to come.”

A net 8 percent of surveyed investors reckon earnings per share will rise over the next 12 months, compared with 35 percent in February.

At first blush the more subdued assessment runs counter to currently upbeat corporate earnings. Among S&P 500 companies that have reported results, 71 percent beat profit estimates while 69 percent exceeded on sales, data compiled by Bloomberg show. All told, they’re expected to say first-quarter earnings increased 17 percent, the most in seven years.

The survey was conducted against a backdrop of continued trade tensions with the majority of respondents (38 percent) saying that remains the market’s top risk followed by a hawkish monetary-policy mistake.

--With assistance from Lu Wang and Andrew Mayeda

To contact the reporter on this story: Sid Verma in London at sverma100@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Cecile Gutscher

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