Global investors have raised their holdings of cash significantly in response to a weaker global economic outlook, particularly in China, according to the BofA Merrill Lynch Fund Manager Survey for July. Overall, equity allocations are unaffected by the higher risk aversion, however.
“Risk-off from concerns over China and euro zone breakdown led Global and European fund managers’ cash levels to soar to their highest levels since the Lehman crisis in 2008”, according to the report. Total cash levels stood at 5.5% of portfolios.
“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
The report highlights that confidence in the global economy has fallen sharply. Only 42% of investors expect strengthening over next year, down from 55% a month ago.
China tops the list of concerns for global fund managers. A net 62% expect the economy to weaken in the next 12 months; eight out of 10 see GDP below 6% by 2018.
Increased pessimism on China led further weakness in assets linked to China. While commodity allocations have dropped to six-month low, global emerging market equities remained the ‘most unloved region’ with allocations at 16-month low.