Cash levels fell from 5% in the previous month to 4.2% in November. This marks the biggest monthly drop since the election of US President Donald Trump in November 2016. Also, cash levels are now at the lowest level since June 2013.
“The bulls are back...global recession concerns vanish and ‘fear of missing out’ prompts wave of optimism and jump in exposure to equities and cyclicals," pointed out the BofA ML survey.
This positivity seems to be driven by heightened expectation of some resolution on the US-China trade conflict. It should be noted that the survey was conducted between 1 and 7 November. The S&P 500 index surged to record highs in October-end, closing above the crucial 3,000 mark. This upward movement was driven by fresh hopes on a resolution to the US-China trade deal, ahead of Trump’s speech at the Economic Club of New York.
However, the US president’s speech on Tuesday hardly provided any clarity on the much-talked about Phase I deal. While Trump said he wanted to reach a trade deal with China, he offered no details. He also blamed the previous US administrations for letting China cheat on trade.
As usual, the trade deal remains in a limbo keeping global investors clueless. “A disillusionment with the prospects of success in the trade poker between the US and China initially dominated market sentiment yesterday. However, speculations, that the punitive tariffs on European car imports threatened by the US government could be postponed for the time being, provided some relief. The daily changing news situation with regard to the trade conflict will keep investors on their toes," analysts at LGT Bank wrote in a note on 13 November.
While sentiments may be driving such a rotation in assets, global macroeconomic data remained disappointing. IHS Markit’s global business outlook survey showed that the optimism among companies about future output, employment and profit hit a decade-low in October. To be sure, global central banks are pumping in easy money into the system to arrest this slowdown, but it is yet to show results.
“UBS’s survey of industry leaders shows trade policy is causing uncertainty, which is reducing and changing investment. That is unlikely to be repaired by a trade deal. Trust in the global trading order has been damaged," UBS Group AG economist Paul Donovan said in his latest blog.
Meanwhile, recession is not being seen as a key concern for now. The BofA ML survey showed the biggest month-on-month jump in growth expectations since 1994. That said, 39% of the fund managers surveyed still see the trade war as the biggest tail risk.