American investors warn of IT bubble burst

American investors have signalled a possible bursting of the IT bubble after the technology sector remained a favourite for global investors in the past three years, according to a survey released today.

According to the Bank of American Merrill Lynch(BofAML) survey of fund managers for July, technology has been a favourite sector for global investors for the past three years, but US investors have signalled a possible bursting of the IT bubble.

Overall, a net 22 per cent of US respondents to the regional survey are overweight on technology - a sharp fall from a net 41 per cent a month ago. Within those figures, 19 per cent of the panel are underweight IT, up from 9 per cent in June, the survey said.

Global investors have also scaled back technology holdings. A net 32 per cent was overweight on technology, down from a net 41 per cent in June.

US equities have declined in popularity as global asset allocators have cast their net around the world. A net 14 per cent of respondents are overweight on US equities, down from a net 31 per cent last month. At the same time, asset allocators have reduced their underweights in euro zone, UK and Japanese equities.

The survey said a sharp drop in expectations of corporate profit growth has weakened investor confidence.

BofA Merrill Lynch's Growth Expectations Composite has fallen to 37 in July from 43 in June and 54 in May. A severely deteriorating outlook for profits is driving the fall in confidence. A net 38 percent of investors say corporate profits will worsen in the coming 12 months - compared with a net 19 per cent a month ago, it said here.

Expectation that corporates can grow profits by 10 per cent or more is at its lowest point since April 2009. A net 69 per cent of the panel expects corporates profit growth to be less than 10 per cent in the coming year. A net 58 percent says operating margins will decrease, up from a net 41 percent in June.

Both broader macro-economic outlook and risk appetite have stabilised after two months of sharp deterioration. A net 13 per cent of the respondents said the world economy will weaken in the coming year, a drop of two percentage points after a fall of 26 points from May to June, said the survey. 

BofA Merrill Lynch's Composite Indicator for risk and liquidity rose slightly month-on-month as investors reduced average cash holdings in portfolios to under 5 percent. Most investors expect further quantitative easing, but few expect this to happen in the third quarter.


nvestor perception of risk in the eurozone shifted in July. The proportion of respondents who see the risk of a negative shock around Germany's economy has more than tripled to 32 percent, up from 10 per cent in June. 

Concern about France has risen with a majority of investors (55 per cent) believing the French economy could present a negative surprise this year, the survey said. 

Fears that Spain or Portugal could spring a negative surprise have fallen, while expectation of good news from Ireland is growing - 32 per cent of investors hope for a positive surprise from Ireland this year, up from 16 per cent in June. 

Confidence in Greece has fallen, however. The proportion saying Greece will avoid exiting the euro fell to 37 per cent from 44 per cent, it added.