The first major survey of global investors since the reawakening of stockmarket tensions at the start of this month has found that fund managers seem to have soured on equities (understandably after the big falls) and where the US economy may be headed.
Concerns over rising inflation, wages (in the January jobs report for the US) and the pace of rate rises from the Federal Reserve saw global markets sold off, with Wall Street twice entering correction (a fall of 10% or more from the most recent peak, in this case on January 26) territory, only to bounce back this week.
While Wall Street saw small gains Tuesday, tonight’s US Consumer Price Inflation report could be another game changer as the January jobs report was.
The Bank of America Merrill Lynch (BAML) fund manager survey for February was conducted between the 2nd and 7th of this month – when the sell off was in full swing – so that might have been responsible for some of the gloominess. The survey covered investors holding a total of $US575 billion under management.
The survey showed these big global investors cut the holdings of shares by the most in two-years in February.
According to the survey, equity allocation fell to a net 43% in February from 55% overweight in January, the largest one-month decline in two years.
BAML said this 12 percentage point drop was short of the 16 percentage point monthly fall required to signal that a risk asset rout was complete, according to historical survey data.
But it also noted a record 20 percentage point jump in the number of investors taking out protection against a sharp fall in equity markets in the next three months, to a net minus 30% in February. That was its biggest one-month jump on record in the history of the survey.
In another, more traditional sign of investor caution, cash levels rose to 4.7% from 4.4%, which was a five year low.
But BAML’s chief investment strategist Michael Hartnett said the cash and equity shifts did not move the needle enough to give the all clear to buy the dip.
The top risk identified by investors for 2018 was an inflation-induced bond crash, chosen by 45% A policy mistake by the Fed or the European Central Bank was next, cited by 18%.
And investors are now worried that the global economic rebound is ageing – 70% of investors surveyed now believe the global economy is in a “late cycle” phase, the highest level since January 2008 (That might be a function of the timing of the survey).
Investment allocation to bonds was at a record low of 69% underweight this month, according to the survey (they obviously see US 10 year bond yields rising past 3% as the next fed meeting in march approaches). “While this month’s survey shows that investors are holding on to more cash and allocating less to equities, neither trait moves the needle enough to give the all clear to buy the dip,” Mr Hartnett said in the survey commentary.
Reuters said that “a rare bright spot, the allocation to emerging market equities held at a net 41 percent overweight, but UK stocks remained out of favor with a net 36 percent underweight, back to near post-global financial crisis lows.”
