According to the latest BofA Merrill Lynch Fund Manager Survey cash levels dropped sharply, from a 15-year high of 5.8%, to 5.4% in August. At the same time, global growth expectations rebounded, with a net 23% of investors expecting the global economy to improve in the next 12 months.
“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,” said Michael Hartnett, chief investment strategist.
Other findings include:
- Central banks’ creation of a low and stable rates environment is a big factor driving fresh optimism and a preference among fund managers for deflation assets over inflation assets; only 13% of respondents expect the BoJ or ECB negative interest rate policy to end within the next 12 months
- A record net 48% of investors think global fiscal policy is currently too restrictive
- Geopolitics is seen as the largest risk to financial market stability, followed by protectionism – which is cited at the highest level since December 2010
- EU disintegration, followed by renewed China devaluation and US inflation are seen by investors as the biggest tail risks
- Allocation to US equities is highest since January 2015 at a net 11% overweight
- Allocation to Eurozone equities remains low at a net 1% overweight while allocation to UK equities improves to net 21% underweight from net 27% underweight last month
- Allocation to EM equities improves to net 13% overweight, its highest level since September 2014
- While allocation to Japanese equities improves to a net 1% underweight from a net 7% underweight last month, allocation preference for the next 12 months worsens to -8% from -3% with only the UK behind Japan
Manish Kabra, European equity quantitative strategist, added that "Eurozone equity allocations are broadly unchanged amid concerns of EU 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 GDP, lower yields and less European exposure."