Global fund managers are growing more bearish given the twin spectacle of a slowing Chinese economy and the debt ruckus in Greece, according to the latest Bank of America Merill Lynch survey out on Wednesday.
Cash levels rose to 5.5% of their portfolios in July to a level not seen since the 2008 Lehman debacle, indicating their rising risk aversion.
China is the leading source of worry, as a net 62% of respondents said they expect Asia’s biggest economy to weaken in the next 12 months, while eight out of 10 fund managers said they expect the country’s GDP to rise less than 6% by 2018.
As a result of this bearish China outlook, assets linked to the country suffered. For instance, commodity allocations fell to a six-month low, while global emerging market equities allocations were at a 16-month low, the “most unloved region,” as BofA Merrill Lynch described it in a statement about the results of the latest survey.
“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” commented Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
Other interesting results:
-Confidence in the global economy fell sharply: 42% of investors expect strengthening over the next year, down from 55% a month ago.
-Bonds are still seen as much more over-valued than equities and more at risk of volatility-driven crash; equity overweights rose to net 42%.
-U.S. dollar bullishness strengthened despite postponing of expected U.S. rate rise to the fourth quarter of 2015 or later, replacing the June consensus of a third quarter increase.
-Appetite to overweight European stocks rose although potential Eurozone breakdown is now the biggest “tail risk.”
The survey was conducted on July 2 to 9 this year involving 191 panelists with a combined $510 billion assets under management. A total of 149 fund managers holding $399 billion in assets joined the global survey, while 90 managers with $196 billion worth of assets under management participated in the regional surveys.
Photo credit: Japanexperterna.se via Flickr