Investors believe that the global economy will slow significantly in the coming 12 months but will avoid dipping back into recession, according to the Bank of America Merrill Lynch (BofA Merrill) survey of fund managers for August 2011.
A net 13% of respondents to the global survey believe that the world economy is headed for a period of weaker growth. The reading represents a significant swing since July when a net 19% were confident the economy would improve. Investors’ forecast for corporate profits shows the biggest downwards swing in the survey’s history. A net 30% of the panel expects the profit outlook to deteriorate in the coming 12 months. In July, a net 11% forecast an improvement in profits.
However, a net 42% of investors still hold the view that a global recession is unlikely in the coming year. The survey took place from 5 August 2011 to 11 August 2011, when world equities fell by 12.3%.
Cash holdings have soared to their highest levels since the depths of the credit crisis as investors have moved out of equities, notably cyclical stocks. Cash balances have climbed close to their high of 5.5% in December 2008. Global investors hold an average of 5.2% of portfolios in cash, up from 4.1% in July. A net 30% are overweight cash compared with their benchmark. Both numbers are at their highest level since March 2009.Asset allocators have scaled back equity positions faster than in any previous month in the survey’s history. A net 2% remain overweight equities, down from a net 35% in July. Asset allocators have also reduced their underweight positions in bonds and reduced holdings in commodities and alternative investments.
“Flows out of equities into cash have reached capitulation levels, especially in the US, but it’s significant that a revival in optimism towards China has survived the global correction,” said Michael Hartnett, chief global equity strategist at BofA Merrill global research.
“Investors are waiting for convincing, coordinated action from governments before recommitting their cash to equities,” said Gary Baker, head of European equities strategy at BofA Merrill global research.
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