Banks are hot, high flying tech stocks aren’t, nor are American equities generally, and fears are rising that global growth is slowing – all this and more is according to the July investment manager survey from bank America Merrill Lynch.
Investors are still a bit tetchy about the outlook with 4.9% holding lots of cash against 5% in June (which was around all time highs for the survey).
Cash levels remain above the long term (10 year) average of 4.5%, pointing to those worries about US stocks, tech shares and global instability.
Some 25% of investors who are holding higher cash levels are doing so because of their bearish views on markets.
And expectations about global growth have weakened as well, with thinking it has slowed falling to 38% in July, from 62% in January.
The survey of 179 fund managers, looking after $US525 billion assets (the survey was done between July 7 and 13) found allocation to tech stocks fell to 28% overweight, down from 37% last month, while allocations to banks rose to 29% overweight, from 23% last month.
The tech-dominated Nasdaq Composite was again picked as the “most crowded” trade, (too many investors) with 38% of poll respondents nominating this, the same as last month.
The Nasdaq sold off sharply in June, losing almost 2% in the final week, but has rebounded in and is trading back near its previous highs, driven higher this week by the better than expected result from Netflix.
This scepticism global investors about Nasdaq and will be given a big test with Alphabet (Google), Facebook and Amazon reporting second quarter figures next week and Apple the following Tuesday.
The survey was taken before Trumpcare fell over, raising fresh doubts that Donald Trump will be able to push through his radical tax cutting and budget plans, not to mention his claimed $US1 trillion spend on US infrastructure.
As well his potentially destabilising plans to upset the North American free Trade Agreement and impose big tariffs on steel imports seems to be running of support, while the Mexican Wall idea remains a pipe dream.
These doubts have helped push the US dollar down to levels not seen since last September against a basket of the currencies of its major partners, while the euro is now above $US1.15.
All this has seen the US dollar fall to two year lows against the Australian currency as well.
And with the June quarter earnings season well underway and forecasts for a rise of 10% (including energy stocks), it was a bit surprising to find from the survey that 22% of those surveyed say corporate earnings will not improve substantially over the next 12 months.
Further, 17% were convinced corporate balance sheets are over-leveraged, the most since April 2009.
The record high prices investors are paying for US equities are also largely unimpressive; 80% said the US is the most overvalued region, down slightly from a June high. And 68% of poll participants said tech stocks were “expensive”.
On the other hand, 19 per cent think eurozone shares are undervalued and 43% think emerging markets stocks are undervalued (60% all up and a big contrast to the scepticism about US market value).
The biggest concern plaguing the minds of fund managers is a fear is for the stability of the bond market (28%). Some 27% pointed to the US Federal Reserve or the European Central Bank making a policy mistake as the biggest tail risk in the market.
Interest rates are still the main theme driving investment decisions, but 42% say the impact of the US Federal Reserve reducing the size of its huge balance sheet won’t be a concern this year, while 31% expect it to be a risk-off event which sends yields up and stocks down.
