Cash levels with global investors at 15-year high: BofA

Global investors and fund managers seem to be raising cash holding in their portfolio, given the uncertainty surrounding the 'Brexit' (Britain's exit from the European Union) vote on June 23.

The latest Bank of America Merrill Lynch Fund Manager Survey suggests global investors are sitting on a 'mountain of cash', with risk appetite and global equity allocation hitting four-year low. The survey sees Brexit as the biggest tail risk, followed by quantitative failure and China devaluation/defaults.. 

However, Two-thirds of investors surveyed believe that the US Federal Reserve (US Fed) will remain hawkish and hold rates steady in June, while 48% of investors expect incremental easing from the Bank of Japan (BoJ) this month.

Given this backdrop, the cash holdings by investors in June in their portfolio rose to 5.7 per cent, highest since November 2001. It was 5.5 per cent last month.

MONEY MATTERS

• 5.7% Highest cash levels reading since November 2001
   
• 4-year low Risk appetite and global equity allocation
   
• Brexit Biggest tail risk
   
• 66% Investors expect a hawkish US Fed, no hike in June
   
• 21-month high Allocation to EM equities

However, allocation to emerging market equities improves to 21-month high, with net six per cent of investors overweight, from net two per cent overweight last month.


 

"While corporate bond and US stock prices are at record highs, investors have a mountain of cash, which means negative summer events could thus quickly become tradable buying opportunities," said Michael Hartnett, chief investment strategist.

An overall total of 213 panelists, with $654 billion worth of assets under management (AUM), participated in the survey.

Regional allocations show Europe remains the most-preferred region (net 26 per cent overweight). "Relatively positive views are driven by growth optimism and the belief that ECB will stay the course of max-easing. In case of Brexit, UK large-cap stocks should be relative winners, given their higher quality characteristics and low domestic exposure," the survey says.

Recently, Goldman Sachs had also turned bearish on the road ahead for equities as an asset class and preferred to stay in cash, with their analysts sounding alarm bells given the lofty valuations and slowing economic growth.

While remaining overweight on cash from a three-month horizon, Goldman Sachs also believes the market's dovish pricing of the US Fed increases rate shock risk, in which case both equity and bonds could sell off.

"We downgrade equities to neutral over 12-months on growth and valuation concerns. Until we see sustained earnings growth, equities do not look attractive, especially on a risk-adjusted basis. We expect particularly poor returns in dollar terms, with our forecast of a stronger dollar and the prospect of less negative equity/ FX correlations. We remain overweight cash on a three - month basis, as we see potential for higher cross-asset volatility," point out analysts at Goldman Sachs led by Christian Mueller-Glissmann in a recent report.