Investors bearish in August in wake of global growth revisions, says BofAML fund manager survey
As cash levels fell due to revisions to global growth expectations, investors were less bearish in August, according to the results of the Bank of America-Merrill Lynch’s fund manager survey.
The bank's global research report found in August cash levels for investors dropped to 5.4% from a 15-year high of 5.8% and expectations for global growth rebounded as 23% of investors surveyed said they expected the global economy to improve within the next 12 months.
Michael Hartnett, chief investment strategist at BofA-ML, said: “Investors are less bearish, but sentiment has yet to shift from ‘fear’ to ‘greed’. As such, we expect stock prices to rise further until bonds throw another tantrum.”
The Bank of England's rate cut to 0.25% from 0.5% on 4 August was the latest in a round acts by central bank’s to create a low and stable rates environment, which the survey suggested, was a big factor in encouraging optimism and fund managers increasing their preference for deflation assets rather than inflation assets.
Only 13% of investors said they expected the Bank of Japan and the European Central Bank's negative interest rate policy to end in the next 12 months.
The survey reported that sentiment towards Europe was less bearish as cash levels fell. Distribution to eurozone equities remained low at 1% overweight, while allocation to UK equities improved to 21% underweight from 27% underweight in July.
Manish Kabra, European equity quantitative strategist at BofA-ML, said: "Eurozone equity allocations are broadly unchanged amid concerns of European Union disintegration and UK stocks are still the least-preferred.
“Within Europe, we prefer UK large-caps from both a positioning and macro perspective, as they benefit from weaker gross domestic product, lower yields and less European exposure."
Geopolitics was seen as the largest risk to financial market stability. EU disintegration, renewed China devaluation and US inflation were seen by investors as the biggest risks within geopolitics. Protectionists policies was the second biggest concern.
Allocation to US equities was 11% overweight, the highest since January 2015, and allocation to emerging market equities improved to 13% overweight, its highest since September 2014.
Japan’s equities improved to 1% underweight from 7% underweight in July, but allocation preference for the next 12 months is predicted to worsen to -8% from -3%, with only the UK behind.