Even though the global fund manager sentiment has turned the most bearish in two years, there is no panic yet as it doesn’t reflect macro capitulation, according to the latest survey by Bank of America Merrill Lynch (BofA ML).
According to the poll, which covers 166 fund managers handing $431 billion of funds, cash level further jumped to 4.9% in October, indicating that risk-assets are oversold and could see some bounce in the coming weeks.
As equity allocations fell sharply to 34% overweight (OW) from 47% in September, almost one in two investors think stocks are the most vulnerable to a rise in volatility, followed by bonds and equities.
While allocations to US and Japan equities, at 17% and 32% OW, jumped to 14-month and 10-month highs, respectively, Emerging market (EM) equities reported their first underweight (UW) reading in five months. In September, EMs saw a net 14% overweight.
India, meanwhile, appears to be the most-preferred GEM market with the highest relative positioning to history (z-score). In the Asia-Pac universe, however, Philippines and Malaysia maintained a higher Z-score than India. Expectations on Chinese growth fell further to a net 35% of the surveyed — from 25% last month— amid signs of a weaker economy in October. For the first time in 10 years, GEM investors don’t see GEM currencies as undervalued.
As per the survey, investors regard long US dollar and long EU periphery debt as the most crowded trade, with 43% and 21% votes, respectively.
While 33% of fund managers expect the European Central bank to commence sovereign bond buying in the first quarter of 2015, close to 25% do not see any quantitative easing from ECB.