US fiscal cliff seen as a bigger threat to funds than Eurozone

Michael Bow
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A US fiscal crisis has surpassed Eurozone sovereign debt funding as the number one fear among European fund managers, as Europe begins to mount a comeback in investors’ portfolio, a poll published yesterday shows.

Fears over the US’s so-called fiscal cliff at the start of January 2013, which could reduce aggregate demand in the country by $700bn, is considered to be the biggest tail risk facing fund management portfolios.

The survey, conducted by Bank of America Merrill Lynch, found 35 per cent polled saw it as the number one risk, up from 26 per cent last month.

Threats from Eurozone sovereign debt defaults have fallen to second place as the biggest tail risk for the first time since April 2011. The survey, which polled fund managers in the Eurozone, also found intentions to overweight Europe over the next 12 months turned positive for the first time since February 2011, growing nine per cent.

Bond manager Pimco has predicted a US fiscal cliff could reduce US aggregate demand by about four per cent of GDP if policymakers fail to reach a deal.

“The upcoming election is putting these fears into sharper focus,” sai Michael Hartnett, the bank’s chief investment strategist in research.