Global investors' risk worry surges: BofA-ML survey

Global investors’ allocation to emerging market (EM) equities have fallen to a record low since 2006.

The reason is weakening growth prospects for China, a deteriorating earnings outlook (the worst since 2002) and a challenging macro environment, amid a strengthening dollar and potential higher bond yields, says the latest Bank of America Merrill Lynch Fund Manager Survey.

A recession in China, followed by an EM debt crisis and a geopolitical crisis, remain the biggest risk for investors, the survey said. With global growth refusing to pick up, Asia-Pacific (ex-Japan) investors think the likelihood of a recession in the region is highest since the 2008-09 crisis.

Asia-Pacific investors have raised their overweight position in Korea, cut their overweight allocation in China and significantly increased their underweight size in Hong Kong, now the largest since 2005. Malaysia and Australia remain underweight.

Global investors have turned more risk-averse, cutting their allocation to equities and raising cash. A net 21 per cent of respondents are overweight on equities, down from 42 per cent last month. A net 38 per cent of participants said they were overweight on cash, up from 20 per cent last month and the highest since mid-2012.

A net 42 per cent of respondents think crude oil is undervalued, close to where it was at the start of last year and a whisker away from 2008 crisis lows. Thirty seven per cent of participants think the bull market in the dollar will only end when the US Federal Reserve stops raising rates.