US Tempts Investors Spooked by Euro Zone

Investors worried about the euro zone’s proliferating debt crisis have found safety across the Atlantic on Wall Street, according to Bank of America Merrill Lynch.


A survey conducted last week showed that investors around the world are expressing confidence in both the U.S. market and currency, while pessimism towards Europe intensified considerably, with 46 percent of the panel expecting the euro to depreciate, up from 23 percent in April.

The proportion of respondents who were overweight global equities plunged a staggering 22 percentage points from April, to 30 percent from 52 percent, while the number of respondents who were overweight U.S. equities rose in the same month.

The percentage of investors who expect Europe’s economy to strengthen next year was just 23 percent, down from 62 percent last month.

Fund managers are also adopting more dovish interest rate expectations, with 90 percent of them in Europe believing that the European Central Bank (ECB) will not raise rates in 2010, up from 62 percent a month ago.

Analysts were bearish on emerging markets as well as Europe, with 29 percent of surveyed investors expecting the Chinese economy to weaken in the next 12 months, compared with 5 percent predicting a stronger Chinese economy the month prior.

Positive sentiment towards emerging market equities has slipped to its lowest since early 2009.

Thirty-three percent of respondents expressed enthusiasm on the U.S. corporate profit outlook, while 41 percent labeled the European outlook least favorable.

Sixty-six percent expected the dollar to appreciate the most out of the reserve currencies, but 25 percent of those surveyed expected no rate rise by the Federal Reserve before April 2011, compared with 10 percent a month ago.

The confidence gap between U.S. and European corporate profitability forecasts reached a seven-year high, with 33 percent of respondents stating that the outlook for corporate profits is most favorable in the U.S. and 41 percent stating that the outlook is least favorable in the euro zone. That spread, of 74 percentage points, is the widest since July 2003.

“May’s survey highlights a flight to the U.S., driven by the uncertainty in Europe and underscores a positive U.S. growth outlook,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research.

“The survey shows that investors have capitulated on Europe, beaten down by sovereign debt concerns and faltering growth expectations,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.