‘Investor sentiment lowest since 2008’

Fund managers stay away from equities and banks, prefer bonds and cash, says BofAML survey

Bleak future: Cash levels with fund managers have have seen the biggest jump since the 2011 U.S. debt crisis.

Concerns related to an escalating trade war, possible recession and ineffective monetary policy have made fund managers bearish to a level last seen during the sub-prime crisis of 2008.

According to the latest global fund manager survey by Bank of America Merrill Lynch (BofAML), fund managers are moving away from placing bets on equities and banks and preferring bonds and cash with the cash levels with fund managers seeing the biggest jump since the 2011 U.S. debt crisis.

“... pessimism driven by concerns over trade war/recession, monetary policy impotence, low strike prices for policy puts; tactical ‘pain trade’ is higher yields and higher stocks, especially if Fed cuts 25 bps [basis points] Wednesday,” stated the survey report released on Tuesday.

The survey, based on responses of 230 fund managers, who collectively manage assets worth $645 billion, also revealed that the global growth expectations of fund managers plunged by the largest quantum since November 1994 when the Mexican peso crisis led to an international financial crisis.

Further, the cash levels — a higher level signifies lack of conviction — saw its biggest jump and is currently at 5.6%, which is one percentage point higher than the 10-year average of 4.6%.

The survey also showed “huge June rotation to bonds, cash, staples, utilities, and huge rotation away from equities, banks, Eurozone, tech.”

Incidentally, the survey saw the second biggest ever month-on-month drop in terms of equity allocation even as growth expectations collapsed by a record 46 percentage points month-on-month to net 50% investors expecting global growth to weaken over the next 12 months.

While the survey did not specifically look at India-specific issues, the record bearish stance is likely to affect equities across the world.

China impact

The recent past has seen the equity markets in the emerging market pack, including that of India, fall on account of concerns related to the ongoing trade war between the U.S. and China.

Further, the slowdown in China has impacted markets across the world, clearly showing that no single market or economy is insulated from the global economic concerns. Incidentally, the India VIX index, which is looked upon as a measure of near-term volatility, has been on the rise in the last few trading sessions as investors remained jittery over the trade war happening between India and the U.S.