Cash levels at two-year highs as risk appetite fades: BoFA-ML survey
Investors turning to cash as geopolitical and interest rate rise fears bite, according to survey
Mumbai: Rising geopolitical tensions along with the threat of rising US interest rates have led global investors to scale back risk and take cash levels to two-year highs, but global emerging markets, and Japan to a small extent, have bucked the wider global trend of pessimism, according to the Bank of America-Merrill Lynch Fund Manager Survey for August.
Investors have shifted robustly into cash with a net 27% of respondents to the global survey overweight cash in August, up from a net 12% in July. Cash now accounts for an average of 5.1% of global portfolios, up from 4.5% in the previous month. Both these readings are at their highest since June 2012.
According to the findings of the survey, the proportion of asset allocators overweight equities has tumbled by 17 percentage points in a month to a net 44% in August, and the number of survey respondents hedging against a sharp fall in equity markets in the coming three months has reached its highest level since October 2008.
On the back of a stronger belief in China and commodities, global emerging markets showed the greatest momentum, with the proportion of asset allocators overweight the region rising to a net 17% from a net 5% in July. A net 6% of regional fund managers expect the Chinese economy to improve in the coming 12 months – the first positive outlook of 2014. In contrast, a net 42% forecast China’s economy to weaken just two months ago.
A net of 21% of investors say that the region they most want to overweight in the next 12 months is global emerging markets, up from a net 4% in July, according to the survey
Fewer global asset allocators are underweight commodities – a net 5% compared with a net 15% in July.
A net 56% of the global panel expects the economy to strengthen in the year ahead, a fall from a net 69% in the previous month.
Fears of a geopolitical crisis is the biggest cause of risk-reduction—with 45% of respondents naming it their number one tail risk this month, up from 28% a month ago, the survey showed. Tail risk is the risk of an asset portfolio moving more than three standard deviations from its current price.
“The market melt-up is over, or at least on pause, as investors seek refuge while they digest world events and the prospect of higher rates," said Michael Hartnett, chief investment strategist at BofA-Merrill Lynch Research.
Impending rate hikes are also playing on investors’ minds – 65% of the panel expects a rate rise in the US before the end of the first half of 2015.
There was a big negative swing in the number of investors currently overweight European equities and an even greater negative swing in sentiment about the future.
A net 13% of asset allocators are overweight euro zone equities – a fall of 22 percentage points in one month. Also, a net 30% of global investors believe that the 12-month profit outlook is worse is Europe than in any other region, the survey findings showed.
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