Bank of America Merrill Lynch’s (BofAML) latest monthly snapshot of the investor community reveals a number of areas that are attracting pessimistic sentiments.
Seventy-four percent of investors surveyed now believe the global economy is in the late-cycle stage – that is, possibly reaching its peak, with the next stage being some form of downturn. This is the highest level ever in the survey’s 24-year history.
The threat of a trade war tops the list of tail risks most commonly cited by investors (30 percent), followed by the threat of rising inflation (23 percent) and a slowdown in global growth (16 percent), according to the BofAML March Global Fund Manager Survey.
As a result of these concerns, investors are reducing risk by increasing allocations to ‘defensives’ such as staples (food and household items), real estate investment trusts, the US and banks, with the allocation to banks climbing to the second-highest level on record, at 36 percent. Investors are also rotating out of cyclicals and value plays including energy, discretionary and materials. Pessimism toward UK equities has also hit an all-time high, with 42 percent of investors surveyed saying they are underweight in the region.
‘Cracks in the bull case are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage,’ says Michael Hartnett, chief investment strategist at BofAML, in a statement. ‘Investors have yet to act on these fears, however, as rates and earnings are keeping the bulls bullish.’
The survey was conducted on March 9-15 and involved 201 respondent firms with $579 bn in assets under management.
