Last updated: 07:39 / Wednesday, 21 September 2016
BofA Merrill Lynch Survey

Cash Levels Remain High

Cash Levels Remain High
  • At 5.5% in September
  • Macro optimism is firmly at pre-Brexit levels
  • 54% of investors say equities and bonds are overvalued

According to the latest BofA Merrill Lynch Global Research report, cash levels rose from 5.4% in August to 5.5% in September – the two most popular reasons cited for high cash levels are a “bearish view on markets” (42%) and a “preference for cash over low-yielding equivalents” (20%).

Manish Kabra, European equity quantitative strategist, said that, “European investors have increased cash allocations to cover their sector underweights in Banks and Commodity sectors. Macro optimism is firmly at pre-Brexit levels, with economic growth expectations at their strongest since June.”

“Investors see an unambiguous vulnerability to ‘bond shock’ among risk assets, with the most crowded negative interest trades and EM equities susceptible should the Fed and especially the BoJ fail to reduce bond volatility in September,” said Michael Hartnett, chief investment strategist.

Other highlights include:

  • An all-time high, net 54%, of investors say equities and bonds are overvalued
  • Equity allocation relative to cash allocation is effectively the lowest it has been in 4 years, and is now at levels which have historically been a good entry point to stocks
  • 83% of investors believe the BoJ and ECB will maintain negative rates over the next 12 months
  • Global growth expectations continued to rise, with a net 26% of investors expecting the global economy to improve over the next 12 months
  • Investors cite Long High Quality stocks as the most crowded trade, followed by Long US/EU IG corporate bonds and Long EM debt – all of which are dependent on everlasting negative interest rate policy (NIRP)
  • Hedge fund exposure to stocks at its highest level since the May 2013 “taper tantrum,” underscoring the market’s vulnerability to a bond shock
  • Allocation to US equities falls to net 7% underweight from net 11% overweight last month
  • Allocation to Eurozone equities improves modestly to net 5% overweight from net 1% overweight last month
  • Allocation to EM equities jumps to the highest overweight in 3.5 years – net 24% overweight from net 13% overweight last month
  • Allocation to Japanese equities falls to net 8% underweight, the biggest underweight since December 2012