Global investors are increasingly cautious amid rising tensions in Ukraine and the prospects of a deteriorating Chinese economic situation.
The latest Bank of America Merrill Lynch (BofAML) fund manager survey shows that 81 percent of fund managers say financial market stability is under threat by conflict between pro-Western and pro-Russian factions in Ukraine. About 20 percent saw geopolitical risk as a concern a month ago.
At the same time, the number of Asian-based or emerging markets-focused fund managers who predict China’s economic situation will worsen in the next 12 months rose to 47 percent in the March survey from 41 percent a month earlier. The proportion of asset allocators who are now underweight emerging markets equities rose to a new record of 31 percent in March, from 29 percent in February.
‘Investors have reacted by showing reduced optimism about the prospect for corporate profits globally and by reining in risk,’ BofAML says in a press release. ‘They have increased cash allocations, reduced equity holdings and taken on greater protection.’
BofAML says the proportion of investors who are exposing their portfolios to lower-than-average levels of risk totaled a net 14 percent this month from a net 2 percent last month. At the same time, the number of global asset allocators who are overweight cash rose to a net 16 percent from a net 12 percent. Cash holdings account for 4.8 percent of their portfolios.
The outlook for corporate profit is now seen in a less optimistic light, with a net 40 percent of investors predicting an improvement over the coming 12 months, compared with a net 45 percent a month ago, according to the results of the survey. The survey between March 7 and March 13 included 241 respondents with a combined $636 bn in assets under management.
Investors are also less insistent that companies borrow and invest, with a net 34 percent saying corporate balance sheets are underleveraged, from a net 40 percent a month ago. The proportion who say companies are investing too little dropped to 63 percent from 67 percent at the same time.
However, Michael Hartnett, chief investment strategist at BofAML Global Research, predicts that equities will continue to rise.
`With neither inflation nor recession posing a threat, we believe the equity bull market is far from over and investors should be putting excess cash into risk assets,’ Hartnett says in the press release.
