Investors' optimism about the economy strengthened in November, and fund managers said in a survey that they expect the good cheer to continue into the New Year despite investors' flight from a key sector: bank stocks.
The Bank of America Merrill Lynch Survey of Fund Managers, released Wednesday, said that investors see 2010 as a year of moderate economic growth, mild inflation and solid returns on global equities.
Eighty percent of respondents to the survey, which queried investors from Dec. 4 to 10 about their sentiment in November, said that they expect the world economy to grow during the next year, compared with 69% who said the same about October.
Two-thirds of investors expect equity markets to return to traditional growth levels or better, according to the survey. Yet 28% of respondents were underinvested in bank stocks, compared to 11% the month before.
"A year ago, strong pessimism over bank stocks would have spread across the market, but now it appears to be isolated to the banks," said Gary Baker, the head of European equity strategy at BofA Merrill Lynch Global Research. "Investors seem to be saying they can be optimistic on markets even without bank support."
Meanwhile, investor expectations for corporate profits were at their highest since December 2003; 48% said that companies are underinvesting.
At the beginning of this year, most investors thought companies were overinvesting.
The survey said that investors are not overly worried about inflation; a growing share of survey respondents do not expect the Federal Reserve to raise interest rates before the second half of 2010.
The researchers contacted 213 fund managers, managing $617 billion in all, for the global survey and 179 managers, overseeing $390 billion, for the regional surveys.