According to investors, global monetary policy is too stimulative and it continues to climb. A crash in global bond markets and a policy mistake by the Fed/ECB to be the biggest tail risks to the market.
Average cash balance has dipped to 4.9% in July so far from 5% last month, which is still above the 10-year average of 4.5%, according to BofA Merrill Lynch Global Research report.
Net percentage of investors surveyed who say global monetary policy is too stimulative and it continues to climb, the highest number since April 2011. Investors consider a crash in global bond markets and a policy mistake by the Fed/ECB to be the biggest tail risks to the market.
The impact of the Fed balance sheet reduction in 2017 will be a non-event, say 42% of investors surveyed; 31% see it as a risk-off event, sending yields up and stocks down. Ronan Carr, European equity strategist, added that, “investors expect Eurozone inflation to rise and find monetary policy too stimulative, putting the ECB’s signalling powers to the test.”
Expectations that corporate profits will improve falls to net 41%, the lowest level since the US election; regarding earnings, net 22% of investors surveyed do not see a substantial improvement over the next 12 months.
BofA Merrill Lynch Global Research report added that Nasdaq tops the list for the third month in a row when fund managers are asked about the most crowded trade, holding steady at 38%.
Allocation to US equities falls to net 20% underweight; the last time investors were more underweight US stocks was in January, 2008.
Investors are becoming sceptical about further improvements in Europe: Net 51% expect the European economy to strengthen over the next 12 months, down from net 61% last month.
While Japan equity allocation has risen sharply to net 18% overweight, from just net 1% overweight last month. “Fund managers’ biggest fears are a shock coming from bond markets or central banks,” said Michael Hartnett, chief investment strategist “Too many investors see the Fed as a likely negative catalyst.”