It’ll be a ‘short and shallow’ stock correction, if any, say fund managers

Shaken, but not stirred. That’s the pulse of global fund managers right now, when it comes to stocks and their big run-up seen since the beginning of the year.

The latest fund-manager survey from Bank of America Merrill Lynch out Tuesday says managers continue to see value in equities on the heels of the strong market performance of early 2013. Around 13% say equities are  still undervalued.

The survey, which polled 251 managers with $691 billion of assets under management, says some 59% of managers think the global economy will strengthen in the year ahead. There’s also a rosier outlook for profits and the most encouraging reading since April 2011 for investors who want companies to start putting their corporate cash to work.
Keying on the “Great Rotation” theme, however, a whopping 82% of those surveyed say bonds are overvalued, the second-highest level ever recorded by the survey. The highest came at the peak of the European sovereign-debt crisis last year. Check out: Stocks are finally beating bonds.
“The continued high level of optimism is a concern, and markets may be vulnerable to bad news, but valuation support suggests any correction should be short and shallow, and our core ‘Great Rotation’ theme remains in play,” said Michael Hartnett, chief investment strategist at B. of A. Merrill Lynch Global Research.

The No. 1 sectoral pick for managers is the pharmaceutical sector, while cyclicals have grown less popular. Managers, in aggregate, also backed away from technology and materials.

Elsewhere, the surveyed managers indicated their positive view toward Japan is not fading. That comes at a time when investors see the yen weakening. Four out of 10 respondents said the dollar/yen  USDJPY +0.30% will likely hit 100 yen before any of the following happen: U.S. debt is downgraded, Spain asks for a bailout, or gold breaks through $2,000 an ounce.

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