Investors have bolstered their cash piles as they become more pessimistic about the outlook for corporate profits and the chance of recession, according to a global buy-side survey.
Cash balances surged to 5.2 percent from 4.1 percent in July, finds Bank of America Merrill Lynch’s (BofAML) monthly survey of fund managers, which canvassed the views of 176 investors with $551 bn in assets under management.
The survey took place between August 5 and August 11, during which time world equities slumped by 12.3 percent. It records how investors dumped stocks at the fastest rate since the poll began.
This month respondents say they are just a net 2 percent overweight equities, compared to a net 35 percent overweight in July’s survey, the biggest ever month-on-month fall in the survey’s history.
Cyclical stocks like industrial and energy companies were the worst hit by this move, finds the survey, while tech and telecoms were the main beneficiaries.
The sharp reduction in equity holdings was triggered in part by worsening growth expectations, with 29 percent of respondents feeling a recession is likely, a rise from 13 percent in the previous month.
Expectations over corporate profits also saw their biggest month-on-month decline in the survey’s history. A net 30 percent of respondents believe profits will deteriorate over the next 12 months; in July, a net 11 percent expected stronger growth.
As a result of all this negative sentiment, nervous fund managers have become more focused on the short term, notes the survey, with a net 47 percent of respondents saying they now have a much shorter investment time horizon.
‘People can’t really see further than their nose,’ said Patrik Schowitz, European equity strategist at BofAML, at a press briefing this morning, commenting on the shortened time horizons.
