Investors Pile Into Stocks as Risk Appetite Jumps, Merrill Says

(Bloomberg) -- Money managers jumped back into equities this month and reduced their holdings of cash as risk appetite returned to levels not seen since the last bull market, a Merrill Lynch & Co. survey showed. Respondents, who together manage $554 billion, increased their holdings in global equities as optimism on economic growth and corporate earnings rose to the highest level in more than five years.The MSCI World Index, a gauge of 23 developed nations, has rebounded 51 percent since March 9 as companies from Goldman Sachs Group Inc. to Intel Corp. reported better-than-expected earnings. The Organization of Economic Cooperation and Development said today that the economies of its 30 members collectively stopped shrinking in the second quarter as Japan joined France and Germany in exiting recession.

“People have had to admit that the global economy is improving,” said Patrik Schowitz, a European equity strategist at Bank of America Securities-Merrill Lynch. “A lot of investors missed out on the March rally, which had become increasingly painful, so they have had to throw in the towel,” he said at a press briefing today in London.A net 34 percent of the 204 fund managers who participated in the survey were “overweight” equities this month as cash holdings diminished. That’s up from 7 percent in July and is at the highest level since October, 2007, the month in which the MSCI World peaked at the end of the last bull market.

Risk Appetite Jumps
The average cash position among respondents dropped to 3.5 percent, the lowest proportion since July 2007, compared with 4.7 percent last month. The report’s risk and liquidity indicator, a measure of risk appetite among investors, jumped to 41 percent, a two-year high.“Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March,” said Michael Hartnett, New York-based co-head of international investment strategy at Bank of America-Merrill Lynch. Though “a nagging lack of conviction about the durability of the recovery remains.”

A net 75 percent of respondents believe the world economy will strengthen in the next 12 months, the highest reading since November 2003. Even so, four out of five investors forecast “below-trend growth.”Optimism on corporate earnings continued to improve, with 70 percent of money managers predicting corporate earnings will rise in the coming year, the highest proportion since January 2004. That compares to 51 percent who held that opinion in July.

The survey was conducted from Aug. 7 to Aug. 12. As of January, Merrill Lynch changed the format of its survey and no longer publishes full historical data.