Optimism about economy increases

A fund managers survey has shown that investors have become more optimistic about the economy. Positive economic reports published last week probably added to the optimism.

Results of the Bank of America Merrill Lynch's December fund managers survey released last week show that investors are optimistic about the economy, with a net 44 percent of respondents expecting the world economy to strengthen in 2011, up from 35 percent the previous month. In line with this optimism, 40 percent of fund managers were overweight equities while 47 percent were underweight bonds.

The Organisation for Economic Co-operation and Development provided a reason for continued optimism about the global economy last week. It reported last Monday that its composite leading indicator for member countries rose to 102.6 in October from 102.5 in September after having been stagnant over the previous few months. It said that this suggests "a stabilisation in the pace of expansion across the OECD".

In the United States, reports last week showed that the economy continues to grow briskly. Retail sales rose 0.8 percent in November while industrial production rose 0.4 percent.

And growth is likely to be sustained for at least the next few months. The Conference Board's index of leading indicators for the US economy rose 1.1 percent in November. The Economic Cycle Research Institute's weekly leading index rose to 127.4 in the week ending 10 December while its rate of growth, which had plunged below minus 11 percent in July, rose to minus 0.1 percent.

The euro area is also continuing to grow. Markit's flash composite purchasing managers index fell to 55.0 in December from 55.5 in November but stayed comfortably above the 50 mark, indicating growth. The manufacturing PMI rose to 56.8 from 55.3 but the services PMI fell to 53.7 from 55.4.

Japan is the only one among the largest developed economies where growth appears to be stalling. Data released today by the Cabinet Office show that the composite coincident index fell to 100.8 in October from 102.1 in September. Growth in coming months is likely to stay weak with the composite leading index falling to 97.7 from 99.1.

Not surprising then that the BofA Merrill Lynch survey showed that 13 percent of fund managers were underweight the country. This, though, still marked an improvement over November when 29 percent were underweight.