Investors Are Most Bullish Ever on China Economic Growth

More investors than ever say they are bullish about China’s economic outlook, and more favor European rather than U.S. stocks for the first time in two years, a Bank of America Corp. monthly survey showed.

A net 67 percent of money managers, who together oversee $503 billion, predicted that China’s economy will grow at a faster rate next year, the highest reading since the survey data started in 2003. Some 7 percent hold more European stocks than appear in benchmarks, the poll showed.

“Investor anxiety has been successfully sedated by central-bank liquidity policies in recent months,” Michael Hartnett, chief investment strategist at Bank of America’s Merrill Lynch unit, wrote in a report today. “Risk appetites are higher and hopes for economic activity have picked up, especially for Chinese growth.”

Optimism that the world’s second-largest economy will accelerate may help to offset concern that potential budget cuts and tax increases in the U.S. will curb global growth. A survey showed China’s manufacturing industry may expand for a second month in December, underscoring optimism the economy will recover following a seven-quarter slowdown.

A net 40 percent said the global economy will improve, the highest reading in 22 months, while a net 11 percent said profits will increase, the most bullish result in 20 months.

U.S. Budget

The poll showed 47 percent of money managers rated America’s budget outlook as their top concern, compared with 22 percent who cited the euro area’s debt crisis. U.S. President Barack Obama and House Speaker John Boehner are trying to reach an agreement to prevent more than $600 billion in tax increases and spending cuts from coming into force in January.

Even as investors became more sanguine about global growth, allocations to equities remained unchanged from November, BofA said. Hedge funds were an exception, with net investment in shares jumping to 45 percent, the highest since August 2006.

“While bullish rhetorically, the lack of follow through in actual positioning suggests moderate conviction at best,” BofA said in the report to investors.

Average cash levels fell to 4.1 percent from 4.2 percent in November, BofA said. A net 41 percent said they hold fewer bonds than benchmarked, the lowest in eight months, while a net 5 percent said they hold more commodities than appear in indexes.

Overweight Europe

The share of respondents who said they are overweight in European equities, meaning they hold more of the region’s shares than are represented in global benchmarks, rose from 5 percent last month, the survey showed. Those saying they are overweight the U.S. fell to a net 5 percent from 11 percent, with the country falling behind Europe in investors’ favor for the first time since November 2010.

Investors remained underweight on Japan and the U.K., the survey showed. A majority are now under-invested in energy companies, for the first time since January 2009, BofA said.

A record high net 64 percent of respondents said companies are not investing enough, BofA said. A net 45 percent of investors now prefer companies to use idle cash to increase capital spending, the highest reading in 20 months, instead of paying back debt or returning it to shareholders.

Almost 200 respondents participated in the global survey, which Merrill Lynch conducted from Dec. 7 to Dec. 13.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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