— Cash Levels ‘Highest Since 9/11’
— Equity Allocation ‘Lowest Since Lehman’
By Vicki Schmelzer
NEW YORK (MaceNews) – Optimism about global growth prospects fell to an all-time low in July, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
Investor cash levels are the “highest since 9/11” and equity allocation the “lowest since Lehman,” the survey reported.
A net 79% of fund managers looked for weaker economic growth in the coming 12 months in July, an all-time low (since record keeping began in 1995) and compared to a net 73% in June.
Investors expected central bank tightening to dampen inflation in the coming year.
Fund managers looked for the Federal Reserve to raise interest rates by another 150 basis points, with a move in PCE inflation below 4% the likely “catalyst for Fed pivot,” the survey said.
A net 76% of managers now look for lower global CPI in the coming 12 months, the highest since December 2008 and compared to a net 72% in June and a net 40% with that view in April.
Notably also, a net 90% of those polled in July voiced concern about “stagflation,” a record high, and up from a net 83% in June.
In addition, a net 79% of fund managers look for global profits to worsen in the next year, a record high and up from a net 72% in June.
Against this backdrop, cash again became king in July, with cash allocation rising to a net 50% overweight from a net 47% overweight in June. This is down from a net 53% overweight in May.
Average cash balances rose to 6.1% in July from 5.6% in June and were back at May levels, which already were the highest cash balances since after the 9/11 attacks.
This month asset allocation again showed outflows out of equities and commodities into bonds.
In July, a net 44% of portfolio managers were underweight global equities, the largest underweight since October 2008 and compared to a net 15% underweight in June and a net 13% underweight in May.
A net 31% of managers were underweight bonds, versus a net 46% underweight in June and a net 65% underweight in May.
Commodity allocation fell to a net 17% overweight in July, the smallest overweight since August 2021. This is down from a net 27% overweight in June and compared to the record 38% overweight seen in April.
On regional equity asset allocation, global investors shunned Eurozone stocks while making only minor tweaks in other regions.
Allocation to U.S. stocks increased to a net 5% underweight in July, versus a net 8% underweight in June and compared to a net 14% overweight in April.
This month, a net 35% of managers were underweight eurozone stocks, the lowest holdings since June 2012 and compared to a net 12% underweight in June and a net 26% underweight in May.
Allocation to global emerging markets (GEM) held steady at a net 5% underweight in July, which is better than the net 14% underweight seen in May.
Allocation to Japanese equities stood at a net 12% underweight in July versus a net 3% underweight in June and UK allocation stood at a net 4% underweight versus a net 5% underweight in June.
In July, the biggest “tail risks” feared by portfolio managers were: “Inflation stays high” (33% of those polled), “Global recession” (24%), “Hawkish central banks” (17%), “Systemic credit events” (10%), “Russia-Ukraine conflict” (7%), “Civil unrest” (4%) and “COVID-19 resurgence” (4%).
Last month, the biggest “tail risks” were: “Hawkish central banks” (32% of those polled), “Global recession” (25%), “Inflation” (22%), “A systemic credit event” (9%), “Russia-Ukraine conflict” (6%), “COVID-19” (3%) and “Cryptocurrencies” (1%).
In July, the “most crowded” trades deemed by global managers were: “Long US dollar” (41% of those polled), “Long oil/commodities” (23%), “Long ESG assets” (12%), “Long cash” (6%), “Short US Treasuries” (6%), “Short US distressed tech stocks” (5%), and “Long China stocks” (0.4%).
Last month, the “most crowded” trades were: “Long oil/commodities” (38% of those polled), “Long U.S. dollar” (19%), “Long U.S. Treasuries (13%), “Short China stocks” (9%), “Long ESG” (8%), “Long Cash” (4%) and “Long bitcoin” (4%).
An overall total of 293 panelists, with $800 billion in assets under management, participated in the BofA Global Research fund manager survey, taken July 8 to 15, 2022. “259 participants with $722bn AUM responded to the Global FMS questions and 134 participants with $285bn AUM responded to the Regional FMS questions,” BofA Global said.
Contact this reporter: vicki@macenews.com
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