BackHigh cash levels indicate bounce in equities likely soon
Bank of America Merrill Lynch survey of global fund managers suggests risk assets are oversold and a bounce is likely in coming weeks
Premium
The Bank of America Merrill Lynch survey of global fund managers for October shows that cash levels have moved up to 4.9%, from 4.6% last month, enough to fuel the next bout of risk-taking. That’s not all. The bank’s risk and liquidity indicator has fallen to its lowest since October 2012 and allocation to equities has fallen to a net 34% overweight from 47% overweight last month. The current allocation is the lowest in the last two years. The survey is usually a contrarian indicator, which suggests that risk assets are oversold and a bounce is likely in the coming weeks.
During the previous month, as investors pared risks, emerging market equities fell and allocations to them were down to a net 5% underweight, the first underweight since May, compared with a net 14% overweight in September. The current allocation to emerging markets is 1.4 standard deviations below long-term averages. Investors are also severely underweight commodities and materials, while the most crowded trade is long US dollar. The report says that contrarian trades would be “long emerging markets, long resources and long commodities".
India has the most favourable positioning relative to its history among global emerging market investors. So, while a bounce in emerging markets will benefit India too, the scope for outperformance is limited.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
