Time to sell equities as we head towards 2021?
That’s the suggestion from Bank of America in its final monthly global big investor survey for 2020 as big investor cash levels fall to lows not seen for seven and a half years.
The survey shows investors have been cutting cash levels to buy stocks which would be a tip that the market may be due for a pullback at least in the near term.
Driving this enthusiasm is the rollout of COVID vaccinations which continues to see investors looking for new value among traditional value sectors which have been neglected in the rebound this year in megatechs, new listings, and other cash-hungry dealings.
Cash balances fell to 4% of portfolios according to the December Bank of America (BofA) Fund Manager Survey.
As a result, professional investors are now underweight cash for the first time since May 2013.
The survey involved 217 fund managers with $US576 billion in assets under management.
Bank of America says the move to underweight cash has triggered a sell signal under the it uses to measure sentiment among portfolio managers.
Big investors are now very bullish on pockets of value in forgotten equity sectors and commodities. This is part of them gearing up for the “reopening trade” as COVID-19 vaccines were being rolled out.
The drop in cash levels triggered a contrarian “sell signal”, BofA added. Global stock valuations are nearing the highs seen during the dotcom bubble, with the MSCI Global Index trading close to 20 times forward earnings.
A large 60% of the investors surveyed said they expected emerging markets to outperform in 2021 by a big margin amid a falling dollar, vaccine rollouts and rising expectations of a V-shaped economic recovery. Allocation to emerging market stocks hit the highest since November 2010.
“2020 was a year utterly dominated by COVID-19 which caused the quickest economic and financial market collapse of all time. However, just half a year later, recovery expectations have also surpassed prior recessions in both speed and magnitude,” BofA wrote in the survey analysis.
COVID-19 was still seen as a threat with 30% of the investors in the survey citing it as a top tail risk, though lower than the 41% seen in November. Fears of inflation featured as the second top tail risk.
Long US tech (ie the megatechs predominantly clustered on Nasdaq and the S&P 500) remained the “most crowded trade” for the eighth straight month. Short the US dollar and long bitcoin were second and third.
“Investor sentiment is bullish as vaccine hopes induce strong ‘buy the reopening’ trade,” said BofA strategists led by Michael Hartnett in the survey’s analysis. “We say sell the vaccine in the first quarter 2021.”
The drop in cash levels and upbeat outlook on growth signal an early-stage economic recovery similar to those seen after the 2008 financial crisis and the dot-com bubble, BofA said.
“Recovery expectations have also surpassed prior recessions in both speed and magnitude,” the bank’s strategists said.
Not a mention though of the Fed and a new US administration. Perhaps those two might be more influential in early 2021 (and the January election results in the two Senate runoffs in Georgia) than cash levels and vaccines – at least for the time being.
