Having hit 4.4% in November, the lowest level since October 2013, the average cash balance rose to 4.7% in December, back above the 10-year average of 4.5%.
In a sign of end of year caution, risk appetite fell month-on-month as cash balances rose. Having hit a record high in November, when a net 16% of investors said they are taking above-normal levels of risk in their investment, the figure fell to a net 11% in December.
“Despite surging credit and equity markets, investors increased their cash balance back into buy territory,” said Michael Hartnett, chief investment strategist at Merrill Lynch. “This paves the way for more risk asset upside in the beginning of 2018.”
Indeed when asked when equity markets will peak, 25% of global investors said the first quarter of next year, 30% said the second quarter and 28% predicted it would happen in the second half of 2018.
A ‘Goldilocks’ scenario remains the consensus view for the global economy, with 54% of investors surveyed expecting above-trend growth and below-trend inflation in the next 12 months, which is just two percentage points lower than last month’s record high.
In terms of positioning, December did see pessimism towards the UK abate slightly with the percentage of those underweight in the country falling from a net 37% in November, to a net 34% in December. However the UK does remain the consensus short among fund managers.
Being long in Bitcoin was considered the most crowded trade (32%) for the second time this year, followed by being long in the FAANGs (Facebook, Apple, Amazon, Netflix and Alphabet’s Google) and BAT (29%) and short volatility (14%).
