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US fiscal cliff trumps eurozone fears, fund managers say

Worries about US fiscal cliff top the agenda for fund managers as eurozone concerns wane.

US fiscal cliff trumps eurozone fears, fund managers say

Investors believe the US fiscal cliff is now the biggest threat to their investments, overshadowing fears about the eurozone sovereign debt crisis, according to the latest Bank of America Merrill Lynch survey.

Worries about the fiscal cliff – when a number of spending cuts will coincide with the expiration of Bush-era tax cuts at the end of the year – are at the forefront as the US elections approach. Some 35% of fund managers cite it as the biggest threat to investment this month.

Eurozone fears on the wane

Conversely, fears about European sovereign risk have reduced, as 33% of investors expressed concern about the region, down from 48% the previous month.

The decline comes after the announcement of further support from the European Central Bank (ECB) with the launch of outright monetary transactions (OMT), or bond buying, to cut the cost of borrowing for peripheral eurozone countries.

Fund managers have also moved assets into the eurozone, and a net 1% of investors were overweight the region in September, up from a net 12% underweight eurozone stocks in August.

John Bilton, European Investment Strategist at Bank of America Merrill Lynch, said: ‘We have seen a 25% rally in European stocks from the June low, but sentiment on Europe has only just turned positive. Any extension of the rally is likely to be led by sector rotation and buying of unloved, domestically exposed stocks.’

The figures come from a survey of 253 fund managers carried out by Bank of America Merrill Lynch between 7 and 13 September.

Investors also became more wary of investing in US equities, with a net 58% identifying the region as the most overvalued and reducing their exposure. Managers sold US equities, leaving a net 11% overweight the region, down from a net 13% the previous month.

2 comments so far. Why not have your say?


Sep 18, 2012 at 16:24

I simply cannot believe that the markets think that OMT has solved anything so far as the Eurozone is concerned. Mr. Draghi famously said the ECB would do "whatever it takes" to support the Euro but the only fundamental solution - the mutualisation of Euro debt - isn't available to him as Mrs. Merkel has again said that it won't happen. So he means "we'll do whatever it takes.....other than the one thing we need to do". Furthermore, although he's "said" he'll support the bond market, he hasn't actually done anything yet, and may not if the distressed states needing his support don't kow-tow to his requirement that they submit themselves to Troika budget restrictions. But even then, OMT is just the sticking plaster not the cure. The underlying problem is one of unsustainable structural deficits in certain Eurozone economies and unless that is resolved, the ECB's limitless bond purchases is like pouring water into a bath with the plug missing.

I haven't got round to worrying about the US 'fiscal cliff' yet. I'm still positioning myself for a serious market wobble over a Eurozone event.

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Graham Hacker via mobile

Sep 19, 2012 at 07:40

Many thanks Jeffian - a very sane analysis with which I agree entirely

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