For the second time in four months, big global investors have scaled back risk and taken on more cash – this time to two-year highs, on worries over geopolitical tensions and a growing belief that there’s a potential US interest rate hike ahead.
In addition big global investors have cut their exposure to European shares and boosted their exposure to Japan and emerging markets.
The August Bank of America/Merrill Lynch survey of global investors, released earlier this week, shows nerves are being rattled by the fighting in Iraq, Gaza and Ukraine.
The fears about the timing of a US rate cut (the first since late 2008), are a hard perennial among investors, and all of their fears in the past have been proven wrong.
This time, it’s the geopolitical concerns that have triggered a run to build up cash reserves.
So a net 27% of respondents to the survey said they were overweight cash, compared with 12% in July.
In fact that has been a rising trend since the first quarter of this year, as tensions in Ukraine have risen.
Cash now makes up 5.1% of global portfolios on average, compared with 4.5% in July and 4.9% in May and 4.8% in April.
Both the readings have reached their highest level since June 2012, the survey revealed.
Investors hedging against a sharp fall in equity markets in the coming 12 weeks has also reached its highest level since the onset of the global financial crisis, the bank said.
At the same time, the net percentage of asset managers who are overweight equities fell 17 points to a net 44% in August, and fewer managers are underweight commodities, down from net 15% in July to net 5% this month.
In addition, the proportion of investors hedging against a "sharp fall" in equity markets is at its highest since October 2008, the bank said, noting that the earnings outlook saw its greatest monthly drop since the survey began.
"The market melt-up is over, or at least on pause, as investors seek refuge while they digest world events and the prospect of higher rates," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research. "We see further de-risking to come in Europe."
A net 13% of asset allocators are overweight euro-zone equities, a fall of 22 percentage points in one month.
After around a year of being in favour, Europe is now on the nose – with the tensions in Ukraine the main cause, and worries about deflation and growth in the eurozone.
By contrast, a net 30% are overweight Japanese equities, while a stronger belief in the Chinese economy and commodities means a net 17% are overweight global emerging markets, versus 5% in July.
Meanwhile, those opting for value over growth investing hit a record level of net 48% in August, topping previous highs that came after the financial crisis in 2009.
Global growth forecasts have also taken a hit, with a net 56% of respondents expecting the economy to strengthen this year compared to 69% in July. That’s a big change in a month.
