Allocations to US equities have climbed 16 percentage points among investors, according to the Bank of America Merrill Lynch (BofAML) June Fund Manager Survey, with 64 percent of respondents saying the US has the most favorable outlook for profits: a 17-year high.
That is all the good news in the June survey, however – all other regions have negative profit outlooks. In addition, a record 42 percent of investors surveyed say companies are over-leveraged, far exceeding the 32 percent peak in 2008 at the start of the financial crisis, putting the current high figure in perspective.
And an all-time high of 34 percent think corporate balance sheets are over-leveraged, suggesting bad times ahead.
The June surveys reveals investors are selling cyclical plays – banks, emerging markets and eurozone equities – in favor of defensive sectors and US equities.
This month, the most commonly cited tail risk to the markets is a trade war (31 percent), followed by a Federal Reserve/European Central Bank hawkish policy mistake (26 percent) and a euro/emerging markets debt crisis (23 percent): trade tensions have been the dominant and prevalent macro concern for investors in 2018.
Expectations for faster global growth hold at a very low level, with just 1 percent of investors indicating they think the global economy will strengthen over the next 12 months, barely above the boom/bust threshold and still at its lowest level since February 2016.
Michael Hartnett, chief investment strategist at BofAML, says in a statement: ‘Investors have their eyes on the US this month, with a record high favorable outlook for profits and a return to US equity allocation. Decoupling is back in vogue.’
