Global fund managers are reported to have raised
cash holdings to the highest since June 2012, according to a survey this month
by Bank of America Merrill Lynch, while cutting European equity holdings.
Rising geo-political temperatures combined with
the threat of rising US interest rates have led global investors to scale back
risk with a net 27% of respondents to the global survey overweight cash in
August, up from a net 12% in July. Cash now accounts for an average of 5.1% of
global portfolios, up from 4.5% a month ago. Both cash readings are at their
highest since June 2012. The proportion of asset allocators overweight equities
has tumbled by 17%age points in one month, to a net 44% in August. The number of
survey respondents hedging against a sharp fall in equity markets in the coming
three months has reached its highest level since
BofA says global growth predictions have fallen since July but remain firm. A
net 56% of the global panel expects the economy to strengthen in the year ahead,
a fall from a net 69% in the previous month. However, sentiment towards Europe
has fallen significantly – the earnings outlook for the region suffered its
greatest monthly fall since the survey started.
Fears of a geopolitical crisis is the biggest cause of risk-reduction - - with
45% of respondents naming it their number one “tail risk” this month, up from
28% a month ago. But a new question in the survey highlights how a rate hike is
also playing on investors’ minds - - 65% of the panel expects a US rate rise
before the end of the first half of 2015.
“The market melt-up is over, or at least on pause, as investors seek refuge
while they digest world events and the prospect of higher rates,” said
Michael Hartnett, chief investment strategist at BofA
Merrill Lynch Research. “We see further de-risking to come in Europe.
Negativity in this month’s survey towards Europe reflects growing softness in
economic data from both the core and periphery of the region,” said
Manish Kabra, European equity and quantitative
Europe’s status as the world’s market darling for much
of 2014 has all but evaporated in the past month, with a big negative
swing in the number of investors currently overweight European equities and an
even greater negative swing in sentiment about the future.
A net 13% of asset allocators are overweight Eurozone equities - - a fall of
22%age points in one month. U.S. equities also lost ground but only a 4-%age
point drop to a net 6%. Furthermore, a net 30% of global investors believe that
the 12-month profit outlook is worse is Europe than in any other region. That
reading has fallen 24%age points since July - - a record one-month swing.
A net 40% said the euro is the currency they most expect to depreciate (on
a trade-weighted basis), a reading that represents a two-year high in negativity
towards the euro, up from a net 28% in July.
Global Emerging Markets (GEM), and to a lesser extent Japan, have bucked the
wider global trend of pessimism. A net 30% of asset allocators are now
overweight Japanese equities, a rise from a net 26% in July and making Japanese
equities the most popular of the five regions.
GEM has shown the greatest momentum, with the proportion of asset allocators
overweight the region rising to a net 17% from a net 5% in July. Behind the
improvement is stronger belief in China and in commodities. A net 6% of regional
fund managers expect the Chinese economy to improve in the coming 12 months –
the first positive outlook of 2014. Just two months ago, a net 42% forecast
China’s economy to weaken.
An overall total of 224 panelists with US$675bn of assets under management
participated in the survey from 1 August to 7 August 2014. A total of 177
managers, managing $529bn, participated in the global survey. A total of 112
managers, managing $278bn, participated in the regional surveys. The survey was
conducted by BofA Merrill Lynch Global Research with the help of market research