With the underweight stance in the US increasing from a net 22% in August to a net 28% in September, BofA Merrill Lynch said managers had not been this underweight the US relative to emerging markets since December 2007.
The jump in the overweight position in emerging markets, up eight percentage points (ppts) from August, could be explained by the fact that a net 28% believe the region has a favourable profit outlook, up 3ppts from August.
Given recent tensions between the US and North Korea, it is perhaps little surprise that with 34% of the vote, and jumping to first place as the biggest perceived tail risk to markets, was North Korea. It replaced a policy mistake by the Fed/ECB, which 21% of managers see as the largest risk.
Pessimistic on growth
Meanwhile, cash balances fell to 4.8% in September from 4.9% in August, although they remain above the 10-year average of 4.5%. This is perhaps explained by the fact that optimism regarding global growth continues to sag, with just 25% of investors expecting a stronger economy in the next 12 months, the lowest level since October 2016 and down from 62% at the start of the year.
“Cash levels remain elevated, suggesting markets can remain in an Icarus upside mode for risk assets,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch. “Investors have shunned mean reversion and cut their expectations for much higher bond yields.”
Some 214 global managers with assets under management of $629bn took place in the survey, which was conducted between 1 and 7 September.
