With increasing concern over China’s growth, investors are significantly less confident in the global economic outlook, according to the BofA Merrill Lynch Fund Manager Survey for January.
Allocations to equities have fallen sharply, while cash holdings have risen. A net 8 percent of fund managers see the global economy strengthening over the next 12 months – the survey’s lowest reading on this measure since 2012. Despite this, just 12 percent believe a global recession will occur in the next 12 months.
Slowdown in China now stands out as the panel’s biggest “tail risk” by far. More respondents now think global profits will decline over the next 12 months than increase, the first negative reading in over three years. Over half of respondents expect no more than two Fed hikes in the next 12 months, up from 40 percent a month ago.
Long U.S. dollar remains the most crowded trade, but bullishness on the currency is waning. Average cash balances are up to 5.4 percent, the third-highest reading since 2009. A net 38 percent of investors are now overweight cash.
Net overweights in equities have halved to a net 21 percent from December’s net 42 percent, while bond underweights have retreated. Bearishness towards Global Emerging Markets equities has increased to a record level. Europe and Japan remain the most favored stock markets.
“Investors are not yet ‘max bearish’. They have yet to accept that we are already well into a normal, cyclical recession/bear market,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Investors’ bullishness towards Europe remains intact, but conviction is rooted to the floor. The positioning gap between the most and least preferred sectors is the lowest in two years,” said James Barty, head of European equity strategy.
Fund Manager Survey
An overall total of 211 panelists with US$610 billion of assets under management participated in the survey from 8 January to 14 January 2016. A total of 173 managers, managing US$499 billion, participated in the global survey. A total of 96 managers, managing US$228 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.
BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers over 3,400 stocks and almost 1,200 credits, and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2015 by Institutional Investor magazine; No. 1 in the 2015 Institutional Investor All-America survey; No. 1 in the 2015 Institutional Investor Latin America survey; No. 1 in the Institutional Investor 2015 Emerging EMEA Survey; No. 1 in the 2015 All-Europe Fixed Income survey; No. 2 in the 2015 Institutional Investor All-Asia survey; and No. 2 in the 2015 All-America Fixed Income survey for the fourth consecutive year.