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Even
though world bond yields have never been lower and an increasing
array of bank deposit rates around the world are now negative,
investors are willing to hold more cash in their portfolios than
at any time since November 2001.
Risk appetite fell to its lowest level in four years, consistent
with recession, although growth and profit expectations hit a
six-month high and inflation expectations a one-year high,
BAML's global fund manager survey showed.
"Globally, sentiment remains weak. Global asset allocators are
holding the highest average cash balance since November 2001,
while equity allocations have dropped to four-year lows," BAML
said on Tuesday.
In a note titled "No Bulls on Bear Mountain", BAML said fund
managers held an average 5.7 percent of their portfolio in cash,
up from 5.5 percent in May.
This could quickly present buying opportunities, however,
because cash balances above 4.5 percent generate a contrarian
'buy' signal for equities, BAML said. Balances below 3.5 percent
trigger a contrarian 'sell' signal.
The survey of 213 fund managers with $654 billion of assets
under management showed that Britain leaving the European Union
was the by far biggest 'tail risk' for world markets (according
to 30 percent of respondents) followed by central banks'
"quantitative failure" super-loose monetary policy (18 percent).
Britons vote on June 23 whether to remain in or leave the EU.
Polls show it is a close call, and the betting odds are
narrowing sharply too.
Allocation to equities fell to a net overweight 1 percent
position - a four-year low - from 6 percent overweight in May.
So far this year, global equity funds have posted a net outflow
of $106 billion, almost all from developed markets.
On the flip side, investors' allocation to bonds rose to a net
34 percent underweight from 41 percent underweight the month
before. That was the highest in three and a half years.
World bond yields are currently at their lowest level on record,
depressed by mounting worries over sub-par growth and anaemic
inflation. Germany's benchmark 10-year Bund yield fell below
zero on Tuesday for the first time ever.
The percentage of fund managers who think both stock and bond
markets are over valued rose to its fourth highest level since
BAML started tracking the data in 2003.
A record net 35 percent of investors said fiscal policy is too
tight, BAML said.
(Reporting by Jamie McGeever; Editing by Alexandra Hudson)
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