renjith krishnan

Johannesburg - Investors are the most optimistic on banks since the top of the bull market in 2007, bolstered by record-low interest rates and an improving outlook for global growth and profits, a Bank of America Corp. survey showed.

A net 6 percent of global fund managers, who together oversee about $555 billion, said they were overweight banks, the highest since February 2007. That’s up from 3 percent last month and compares with a net 25 percent who were underweight the industry a year ago. They also consider liquidity conditions to be the most favourable since March 2011.

“Fund managers have maintained their level of optimism in terms of risk appetite,” John Bilton, European investment strategist at Bank of America’s Merrill Lynch unit, said at a press conference in London. “There is a widespread belief of improving but below-trend growth. Just one in 10 sees the risk of a global recession in 2013.”

The MSCI World Index has climbed 5.2 percent since the start of 2013, touching a 4 1/2-year high on Feb 1., as US lawmakers agreed on a compromise budget. Financial firms are the second-best performing industry group behind health-care companies on the global equities benchmark, rallying 6.6 percent so far this year. They surged 26 percent in 2012.

Investors maintained their holdings in global stock markets at the highest levels since February 2011, with 51 percent overweight the asset class, unchanged from the previous month. They also kept their underweight position in bonds but reduced their cash holdings to neutral, the lowest level in two years.

Asset Rotation

Almost half of respondents said they were prepared to sell government bonds to fund the purchase of riskier equities, while allocations in alternative investments and real estate climbed to the highest level in almost five years.

“Investors are beginning to warm up to a gradual recovery,” said Bilton. “They are going to increasingly recognise that corporate bonds, like government bonds have essential run out of yield. At the margin, you are seeing the case for credit evaporate.”

Expectations for global growth and profits surged to the highest levels in 24 months, according to the survey. Even so, investors increased their holdings in so-called defensive pharmaceutical and consumer-staples companies. They reduced their allocation in energy and materials and cut their holdings in technology companies to the lowest level since 2009.

Emerging markets remained the most favoured region among the global survey’s 194 respondents, followed by euro-area and US equities. Optimism toward Japanese stocks increased to 7 percent overweight, the highest since the start of 2011.

The global survey was conducted between February 1 to February 7. - Bloomberg