Fund managers turn most bearish since financial crisis, June BofA-ML survey finds

Sculpture by Jimmie Durham, titled ‘Still Life with Spirit and Xitle,’ made of car, volcanic stone and acrylic paint at the Hirshorn museum in Washington, DC. Photo taken July 2018.Sculpture by Jimmie Durham, titled ‘Still Life with Spirit and Xitle,’ made of car, volcanic stone and acrylic paint at the Hirshorn museum in Washington, DC.

Global fund managers are at their most pessimistic since the Global Financial Crisis amid concerns over the trade war, potential recession and monetary policy impotence, the Bank of America-Merrill Lynch fund manager survey (FMS) for June found.

A net 50 percent of FMS investors said they expect global growth to weaken over the next 12 months, marking a 46 percentage-point month-on-month collapse in outlook, the survey found. That reading is in line with the 2001-01 and 2008-09 recession levels, BofA-ML said.

Concerns about the trade war were on the boil, with a net 56 percent of FMS investors calling it the top tail risk, the survey found. That was up 19 percentage points on-month, making it the biggest risk reading since the trade war fears in July 2018 reached a net 60 percent.

The outlook for global profits plummeted, with a net 41 percent of fund managers saying they expect deterioration in the next 12 months, a 40 percentage-point swing on-month, the survey said.

Asset allocations by fund managers were implying recessionary conditions, the survey found, with a bearish rotation to overweights in cash, bonds, staples and utilities, and away from equities banks, the Eurozone and technology.

Equity allocations posted their second-largest drop ever, falling 32 percentage points on-month to a net 21 percent of fund managers saying they were underweight, marking the lowest equity allocation since March 2009, during the Global Financial Crisis, the survey said.

Allocations to banks dropped 20 percentage points to a net 13 percent of fund managers saying they were underweight, BofA-ML said.

By region, allocations to U.S. equities edged up 3 percentage points to a net 5 percent overweight, making it the second-most preferred region, the survey found.

Allocations to Eurozone equities dropped 17 percentage points to a net 8 percentage points underweight, just off January 2019’s seven-year low of 11 percent underweight, BofA-ML said.

The U.K. remained the least favored region, even as allocations to U.K. equities rose 4 percentage points on-month to a net 24 percent underweight as Brexit remained a sticking point and as the Conservative Party heads into leadership elections, BofA-ML said.

For emerging markets, allocations remained the consensus, despite falling 13 percentage points to a net 21 percent overweight, the survey said.

Bond allocations jumped 12 percentage points on-month to 22 percent of fund mangers saying they were underweight, the highest allocation since September 2011, the survey found.

BofA-ML said dovish central banks, falling inflation expectations and risk-off sentiment were driving interest rates lower, spurring interest in bonds.

Fund managers’ cash levels jumped a percentage point to 5.6 percent, the biggest jump since the 2011 U.S. debt ceiling crisis, the survey said.

Cash allocations jumped 10 percentage points on-month to a net 43 percent of fund managers saying they were overweight, BofA-ML said.

The survey period was from 7 to 13 June, with 179 participants with US$528 billion in assets under management responding to the global fund manager survey, the statement said.

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