Bullish investors urge companies to focus on capex over balance sheet, finds survey

Investors are feeling more confidence about the economic recovery and have suggested companies start using cash flow to invest in the business rather than strengthen the balance sheet, according to the latest global fund manager survey from Bank of America Merrill Lynch (BofAML).

The research, which took place between February 5 and February 11, finds 91 percent of respondents expect a stronger economy in 2021 – the highest ever reading for this indicator. In addition, most (34 percent) predict a V-shaped recovery from the Covid-19 crisis, up from 10 percent nine months ago.

Investor bullishness has risen on improving economic data and the fast vaccine roll-out in some countries. The positive mood has helped push stock markets to record highs in the US and to their highest level in Japan since 1990. 

Underlining investor confidence, cash levels have fallen to 3.8 percent, their lowest level since March 2018, finds the BofAML survey. Meanwhile, global equity allocations have risen to their highest point for a decade. 

Investors currently have ‘high exposure to commodities, emerging markets, industrials [and] banks relative to the past 10 years,’ write BofAML analysts, but a ‘January wobble’ led them to top up assets that have performed well over the last 12 months, like tech, healthcare and US stocks. 

The February survey also notes a key shift in investor expectations for corporate management: a majority of respondents (51 percent) say the best use of free cash flow would be capital expenditure, compared with 33 percent who think it should be used to improve the balance sheet.

This is the first time since the onset of the Covid-19 crisis that balance sheet improvements have not been prioritized by investors. 

BofAML’s global survey polled 204 individuals with a collective $614 bn in assets under management.