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Investor Sentiment At Lowest Point Since Summer 2011, Says Survey

The perception of the finance markets held by by professional investors is at

The perception of the finance markets held by by professional investors is at its lowest point since the sovereign debt crisis happened in Europe in summer 2011, according to a statement containing the results of the BofA Merrill Lynch Survey of Fund Managers for June.

According to the fund managers who contributed to the survey, a net 11 percent of respondents believe that the global economy will get worse during the next 12 months. This reading is the lowest for the survey since December 2011. In May, a net 15 percent of participants thought that the economy would improve. The difference between the two readings - 26 percent - is the biggest since the summer of 2011 as the European sovereign debt crisis accelerated.

A net 19 percent of respondents predict that corporate earnings will decline during the next 12 months. This contrasted with the survey results in May, which indicated that a net 1 percent estimated corporate profits rising during the next 12 months.

Weak market sentiment
The lackluster sentiment of professional investors can be illustrated by their recent utilization of "risk off" positions. Portfolios have their highest allocation to cash since the credit crisis in January 2009 as 5.3 percent of total funds, which is a sharp increase from 4.7 percent in May. The Risk & Liquidity Composite Indicator fell to 30 points in June, which is around 25 percent its average reading of 40.

"Investors have taken extreme 'risk off' positions and equities are oversold, but we have yet to see full capitulation. Low allocations in Europe are in line with perceptions of growing risk levels in the eurozone," Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research, said in the statement.

"Hopes expressed last month of a policy response have now become expectations. Markets are keenly anticipating decisive action from key policy meetings in June," added Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.

Low equity valuations
Global equities are at their most undervalued level since August 2011. A net 48 percent of the people in the panel stated that global equity prices are undervalued, which is tied for the highest number expressing this perception since the polling for the survey began. The fraction of respondents who described these financial instruments as undervalued was a sharp increase from the net 35 in May and the net 22 percent in April.