Global investors turning cautious, says survey

Increase cash levels to 15-year high; go for underweight equities for the first time in 4 years, reveals a BofA-ML survey

The rally seen in global equities could be running out of steam, if Bank of America Merrill Lynch (BofA-ML) July survey is anything to go by. Global fund managers are increasing cash levels, buying protection against a sharp fall in the market, and are going underweight equities, the survey has revealed.

Cash levels are at 5.8 per cent, the highest since November 2011. In addition, fund managers are buying the highest ever amount of protection against a steep fall in the market over the next three months, the survey says.

RUNNING OUT OF STEAM

• Cash level highest since November 2001 at 5.8%, up from 5.7% in June
• Investor buying of protection against sharp decline in stock market at record high
• First equity UW in four years, albeit very marginal
• Growth/profit expectations flat/negative but just 17% think recession likely

The cautious stance comes at a time when most global markets are either at a record-high level or multi-month highs. Benchmark indices in the US are hovering around record highs, while domestic benchmarks are at a 11-month high. Despite US Federal Reserve putting interest rates on hold and other developed world central banks moving to negative interest rate regime, fund managers are worried that the global financial conditions are tightening.

Global growth expectations have slumped to a five-month low, with only a net two per cent expecting a stronger economy over the next 12 months. Around 60 per cent of respondents think geopolitical risk is the biggest threat to financial market stability, 52 per cent and 48 per cent believe it is protectionist risk and business cycle risk, respectively.

Interestingly, most fund managers expect introduction of the so-called ‘helicopter money’, a term used for permanent expansion in monetary base to finance Budget deficit. Forty-four per cent of fund managers surveyed in July expect the announcement of ‘helicopter money’, up from 27 per cent in June.

Fund managers, according to the survey, have become underweight equities for the first time in four years. They have shifted their allocations away from Europe in favour of emerging markets (EM). Fund manager’s EM overweight stance has increased to a 22-month high, expecting the recent run to continue.

The MSCI EM index has rallied 25 per cent from 2016 lows. India, too, has seen a 20 per cent gain from its 2016 lows. Meanwhile, fund managers have turned underweight on Europe and further reduced their underweight on Japan.