Almost half of all global investors (45 percent) see geopolitical issues as the number one risk at present, according to the latest Bank of America Merrill Lynch (BofAML) survey.
Conflict between the West and Russia over fighting in eastern Ukraine, the advance of Sunni militants in northern Iraq and the resumption of US airstrikes, and fighting in the Gaza strip are among events prompting a wave of caution among global investors. This is combined with concerns over possible increases in US interest rates.
‘The market [recovery] is over, or at least on pause, as investors seek refuge while they digest world events and the prospect of higher rates,’ says Michael Hartnett, chief investment strategist at BofAML Research, in a note.
The survey shows that 45 percent of investors see geopolitical issues as the number one risk this month, up from 28 percent in July. Answering a new question for the survey, 65 percent say they expect an interest rate increase in the US before the end of the first half of 2015.
Investors are also less optimistic about the outlook for Europe, with the number of asset allocators who are overweight eurozone equities plunging to 13 percent in August from 38 percent in July. A net 30 percent also say the 12-month profit outlook in Europe is worse than anywhere else.
‘We see further de-risking to come in Europe,’ says Manish Kabra, European equity and quantitative strategist at BofAML Research, in a note. ‘Negativity in this month’s survey toward Europe reflects growing softness in economic data from both the core and periphery of the region.’
A net 27 percent of investors who responded to the BofAML fund manager survey for August are overweight cash, the highest level since June 2012 and up from a net 12 percent in July. Cash accounts for 5.1 percent of the average institutional investor’s portfolio, up from 4.5 percent a month ago.
At the same time, the number of respondents who are overweight equities has dropped sharply in August, falling to a net 44 percent from a net 61 percent in July. BofAML says the number of investors hedging against a sharp drop in equities over the coming three months has risen to its highest level since October 2008.
