The collapse in crude oil prices have led to a big rotation towards US dollar, cash, technology & discretionary stocks, according to the BofA Merrill Lynch fund manager survey for December..
The global survey shows that 69% of the fund managers believe that deflation is a big risk for 2015 as inflation expectations crashed to their lowest level since August 2012. At 36%, highest number of surveyed experts since April 2009, said that oil prices are “undervalued”.
“Consensus is long Deflation, Cash & the US dollar, and short Inflation, Risk and Commodities,” observes the poll even as 60% of the polled experts said that “Long US dollar” is the most crowded trade.
Equity allocations jumped to a five month high reading of 52% “overweight” while commodities allocation fell to one year low reading of net 26% “underweight”. The increased appetite for equities was led by Eurozone with a five month high allocation of net 26% overweight. In contrast, weightages on US and UK stocks came down to net 16% and 18% overweight, lowest readings in 2 years for the latter.
“Given the big rotations out of energy, materials and commodities, it is surprising that allocation to GEM equities actually increases to net 1% OW from neutral last month,” notes the survey finding.
India appeared as the most preferred country amongst both, EM and Asia Pacific investors with a highest positioning (z-score relative to history) in the respective group. Taiwan, China, Indonesia and Phillipines are some of the other preferred countries while both Russia and Hong Kong emerged as the most unfavoured trades.
67% identified equities as the best performing asset class for 2015, followed by currencies & commodities (22%), government bonds (4%) and corporate bonds (2%).
As 63% of the fund managers expected quantitative easing from ECB to come as soon as first quarter of 2015, risk off across the board barred Eurozone stocks. More investors (41%) now think that the first FED rate hike will happen in second quarter of 2015 compared to expectations of a third quarter hike in the last month.
“Long Europe” strategy appear as a consensus amongst the European fund managers with bet 26% overweight on regional equities compared to 8% in the previous month. Europe is the most favoured region in 2015.
214 panellists with US$604 billion of assets under management participated in the global and regional polls from December 5 December 11, 2014.