Investors have boosted cash holdings to their highest level since the financial crisis in 2008 as the global economic outlook weakens, according to the Bank of America Merrill Lynch (BofAML) Fund Manager Survey for July. Equity allocations are being held steady, however, while investors lower bond allocations to ease risk.
Cash holdings climbed for a third straight month in July and now account for 5.5 percent of the average global investor’s portfolio, up from 4.9 percent in June and 4.5 percent in May, the survey shows. Confidence in the global economic outlook has deteriorated, with a net 42 percent of investors expecting strengthening over the next year, down from 55 percent in June.
Equity allocations increased, with a net 42 percent of investors overweight equities. The figure has increased from 38 percent in June though it is still below the May level of 47 percent and April’s 54 percent. Allocations to equities in emerging markets, however, have fallen to a 16-month low. Bonds, meanwhile, ‘are seen as much more overvalued than equities and more at risk of a volatility-driven crash,’ BofAML says in a news release announcing the results of the survey.
Investors’ main concern for the global economy is the economic outlook for China, BofAML adds. A net 62 percent of investors surveyed expect China’s economy to weaken over the coming 12 months and 80 percent predict growth in China’s gross domestic product will slow from the current annual rate of about 7 percent to less than 6 percent by 2018. The expected slowdown in China has led investors to lower their allocations to commodities, with allocations falling to a six-month low.
‘Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,’ says Michael Hartnett, chief investment strategist at BofAML Global Research, in the release.
