Mood check: Fund managers see more upside for equities

Majority of fund managers remain bullish on the road ahead for equities, at a time when global markets have already seen sharp rallies since their March lows. However, they do caution against intermittent corrections. The overall bullish trend, they say, remains intact for now.

A Bofa Global Fund Manager Survey (FMS) for September suggests that 58 per cent of those surveyed say the market is in a bull phase — up from 25 per cent. A total of 224 panelists with $646 billion worth of assets under management (AUM) participated in the survey conducted between September 3 and September 10. Of them, 199 with $601 billion AUM responded to the Global FMS questions; 90 participants with $181 billion AUM responded to the Regional FMS questions, said Bofa Securities.

However, the sustainability of this recovery has led to a marginal rise in cash levels across fund managers surveyed — from the earlier 4.6 per cent to 4.8 per cent in September.

Preference for US equities, according to Bofa Securities, continued in September as well across most global fund managers in Europe, the UK, and emerging markets. As a result, US tech stocks remained the most crowded trade. Those at Credit Suisse Wealth Management, too, echo a similar view. Though they expect the equities to do well on the back of accommodative central bank policies, especially the US Federal Reserve, they do caution against the lopsided valuation of US tech stocks.

“The recent correction in US equities, they caution, is a warning shot that a more pronounced consolidation could be in the offing after equity valuations became lofty over the past few months, with the US markets, in particular, becoming increasingly lopsided, as the rally was concentrated in certain technology names,” wrote Jitendra Gohil, head of India equity research at Credit Suisse Wealth Management, in a September 15 note co-authored with Premal Kamdar.

Credit Suisse Wealth Management expects the Indian equity market to see some downward pressure in the coming weeks, as profit booking may set in.

“However, from a medium-term perspective, we still expect positive returns from equities, as we believe equity, as an asset class, should see support from ultra-loose monetary policies by the major central banks. We recommend investors to use this weakness to build exposure to large private sector banks from a 12-18 months’ perspective,” they said.

According to Goldman Sachs, markets are in the first phase of a new investment cycle, which it calls a ‘Hope’ rally.

Investors, it says, start to anticipate a recovery in this phase and is typically the strongest part of the cycle. Liquidity support from global central banks that has fuelled this rally is likely to continue and ‘policy support’ remains very supportive of risk assets, believes Goldman Sachs.