A Bank of America Merrill Lynch survey of global fund managers makes it abundantly clear that just about everyone is sure Greece will default on its foreign debt obligations. And while this isn’t good news, the view from top money managers is that this eventuality has already been priced into the market and most are more optimistic about the global economy than they were last month.
Ninety-two percent of the 199 fund managers surveyed earlier this month said they believe there’s no way Greece can avoid default and seven out of 10 predict the country will default by April.
However, despite this overwhelming consensus, investors are less worried about sovereign risk than they were a month ago and, generally, less pessimistic about global growth.
“The survey shows investor consensus has priced in, or hopes for, an orderly default by Greece,” Michael Hartnett, chief global equities strategist at BoA Merrill Lynch Research, said in the report.
European sovereign debt funding remains the biggest tail risk in investors’ minds, but concern has fallen from September’s highs. While 68% of respondents considered it their top concern last month, only 61% took that view in October.
The survey also suggests that the outlook for growth has stabilized and fears of global recession have receded. The proportion of the panel expecting a global recession in the coming 12 months has fallen to 25% from 40% in September. And only 15% of the global panel believes growth will weaken in the coming year, down from 17% in September.
“Europe appears back from the brink. But it seems investors are waiting for the all clear from both Europe and emerging markets before committing cash,” Gary Baker, head of European equities strategy at BoA Merrill Lynch Research, said in the report.
Overall, global negativity toward Europe has declined in the past month despite the looming Greek default. Seven percent of the panel said the Eurozone is the region they would most like to underweight in the coming 12 months, down from a 40% in September. More investors (a net 8%) would most like to underweight Japan in the coming year.
Right now, 29% of asset allocators are currently underweight in Eurozone equities, down from 38% in September. Sentiment towards the U.K. has also improved. While 26% were underweight U.K. equities a month ago, that figure fell to 12% in October.
Within Europe, however, investors have become more concerned about the macro economic outlook. Thirty-seven percent of respondents to the European regional survey expect a recession in the coming 12 months, up from 11% a month ago.
BoA officials said a total 286 panelists with $739 billion of assets under management participated in the survey conducted between Oct. 7 and Oct. 13. A total of 199 managers managing $570 billion participated in the global survey.
Larry Barrett writes for Financial Planning.