Market correction shakes investors' confidence in 'buy the dip' mantra

The latest stock market correction has increased investors’ anxiety and shaken their confidence in the ‘buy the dip’ mantra, according to a latest survey of fund managers by Bank of America Merrill Lynch. 

The survey showed a spike in the number of investors who indicated that they had taken protection against a sharp fall in equity markets over the next three months. Also, fund managers were seen reducing risk by moving out of equities. The average cash balance with global investors rose 4.7 per cent in February from 4.4 per cent in the previous month. Allocation to equities declined to 43 per cent from 55 per cent in January—the largest one-month decline in two years.

A majority of investors said the global economy was in the “late cycle,” the highest level since January 2008. Only five per cent of fund managers surveyed said global interest rates would be lower in the next year, while 80 per cent said interest would rise. “While this month’s survey showed that investors were holding on to more cash and allocating less to equities, neither trait moved the needle enough for an all clear to buy the dip,” said Michael Hartnett, chief investment strategist.