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Energy investor exodus according to BAML survey

Date: Wednesday, June 16, 2010
Author: Hedge Funds Review

Global fund managers have significantly reduced their exposure to energy in the wake of the BP oil spill in the Gulf of Mexico, according to a survey by Bank of America Merrill Lynch.

The report said global investors had slashed the energy weightings to 7% overweight from 37% in May. This "is the largest single-month fall ever seen in energy", said the report.

"It was a surprise," said European equity specialist at BAML Gary Baker. "People expected a significant fall but we have never seen such a fall in the context of the survey."

The exodus from energy has seen technology become the most favoured sector among fund managers with the majority currently 41% overweight.

Baker said many fund managers who had reduced their energy weightings would be looking to invest in telecommunications and pharmaceutical industries.

The survey also revealed that 27% of investors now expected a weakening in China's economy over the coming 12 months. This is the most pessimistic reading since January.

"China has been growing at 13% to 14% a year, so there has to be a slowdown otherwise they will face a major inflation problem. The fact fund managers have still focused on emerging markets is good because it suggests that they are comfortable with events unfolding in China," said Baker.

In a separate survey of European fund managers, BAML discovered concerns about the eurozone. Only 7% of European investors felt the eurozone economy would be stronger in the next 12 months. This was a major fall from the 62% who predicted a stronger eurozone only two months ago.

Global fund managers remained slightly more optimistic about the eurozone than European fund managers. The survey revealed that the eurozone was starting a "modest rehabilitation process" as investors wanting to underweight Europe fell to a net of 12% compared with 30% in May.

"There was an easing of concern in the eurozone this month. People think there is value in Europe. It is the most undervalued region," added Baker.