Tech still all the rage while bears prowl emerging
markets: BAML survey
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[August 14, 2018]
By Helen Reid
LONDON (Reuters) - Global investors remain
overwhelmingly bullish on U.S. and Chinese tech shares, while short
positions on emerging equities are growing increasingly popular, Bank of
America Merrill Lynch's latest monthly fund manager survey showed on
Tuesday.
Investors picked "Long FAANG and BAT" as the "most crowded" trade for
the seventh straight month, BAML's August survey found, referring to
U.S. tech giants Facebook, Amazon, Apple, Netflix and Google, and
China's Baidu, Alibaba and Tencent.
Tech has kept its crown, even though results-driven declines by Facebook
and Twitter last month triggered anxiety over the mega-cap stocks
responsible for the lion's share of stock market gains in the U.S. and
China.
Going short emerging-market equities was the second most popular trade,
according to the survey, which was conducted between Aug. 3 and Aug. 9 -
just before Turkey's lira plunged 16 percent against the dollar on
Friday.
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Investors had a small underweight on EM equities, but BAML said prior EM
crisis lows saw investors' underweight at -27 percent, versus -1 percent
today - suggesting investors could slash allocations a lot further from
here.
Among risks to global markets, investors said for the third month in a
row that trade war was the most concerning.
They continued to position for a global monetary tightening cycle led by
the U.S. Federal Reserve. A net 54 percent of investors were underweight
bonds, while 20 percent were overweight global banks, which gain from
higher interest rates.
Overall, global investors became more cautious in August, raising their
cash allocation to 5 percent from 4.7 percent. The increased caution was
tempered with a more positive outlook on the profit cycle, with a net 5
percent saying profits will improve.
European fund managers were relatively more bullish, cutting their cash
allocations to 4.3 percent from 5 percent.
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Traders on the floor of the New York Stock Exchange in New York,
U.S., April 3, 2018. REUTERS/Lucas Jackson
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The proportion of European investors expecting stronger economic growth rose to
the highest since April, and the share expecting a recession in the next 12
months also fell to its second lowest ever.
U.S. EQUITIES IN FAVOR, UK STOCKS DUMPED
Investors' allocation to U.S. equities rose to the biggest overweight since
January 2015, making the U.S. the top equity region for the first time in five
years as Wall Street stocks delivered strong earnings.
The U.S. was the most favorable region in terms of corporate profits, according
to 67 percent of surveyed investors - the highest proportion in 17 years.
Meanwhile, investors pulled money from UK equities, which saw the biggest
one-month drop in allocations since May 2016 as concerns of a no-deal Brexit
rose.
After six months of falling allocations to euro zone equities, investors added
to the region again.
As the S&P 500 volatility gauge <.VIX> hit its lowest since January on Aug 9,
surveyed investors showed the lowest conviction on record for buying volatility.
Accordingly, going long volatility would be a staunchly contrarian bet, going
against the grain of current investor thinking, while BAML also suggested "long
BRIC/short FAANG" and "long bonds" as trades for the contrarian investor.
(Reporting by Helen Reid; editing by Sujata Rao, Larry King)
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