RJ and Makay

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Financial stocks are off to a hot start this year.  The easing of the European debt crisis, improvement in the U.S. economy and the recent $25 billion settlement by large U. S. mortgage lenders has had a bullish effect on asset managers.  During the seven-week period ended February 15, fund managers purchased about $3.2 billion net shares in banks, according to fund tracker EPFR Global.

In the past two months, investors’ confidence in their outlook for global growth and corporate profits substantially slipped, according to a May Bank of America Merrill Lynch survey of global fund managers.

The proportion of respondents who believe the world economy would be strengthening in the next 12 months fell to a net 10%, down from 27% in April and 58% as recently as February. Only 9% of respondents are expecting corporate profits to improve in the coming year.

Bearish sentiment among investors about the outlook for the global economy and corporate earnings has eased, according to the BofA Merrill Lynch Survey of Fund Managers for August. The survey found 78% of investors believe that a double-dip recession is unlikely, and 73% still expect below-trend growth and inflation.  The “spotlight of pessimism” has shifted to the U.S. and Japan, prompting a move toward Eurozone equities and a slight increase in Global Emerging Markets.

The survey results also found there has also been an increase in commodities holdings, reflecting the expectation that the Chinese economy may weaken. A majority of respondents (62%) believe that the yen is overvalued, and 23% of respondents believe that the dollar is undervalued, an increase from 3% the previous month. Below is a summary of the changes in holdings and currency outlooks, according to survey respondents: