Investors well-hedged but not positioned for a breakdown: BofA ML

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Published: May 15, 2019 3:04:31 AM

Over one-third of investors surveyed by Bank of America Merrill Lynch have held hedging measures against a sharp fall in equity markets over the next three months.

Bank of America Merrill Lynch (Reuters File photo)Bank of America Merrill Lynch (Reuters File photo)

Over one-third of investors surveyed by Bank of America Merrill Lynch have held hedging measures against a sharp fall in equity markets over the next three months. “Investors are well-hedged but not positioned for a breakdown in trade talks,” said BofA ML in May 2019 global fund manager survey report.

While emerging markets remain the most preferred region, with net 34% overweight, while the UK remains the least favourite, with net 28% underweight.

Key risks include trade war which tops the list of tail risks, followed by a China slowdown and US politics. A net 5% of FMS investors are expecting global growth to weaken over the next year; two-thirds of those surveyed do not expect a global recession until the second half of 2020 or later.

“FMS investors think US equities would need to fall to as low as 2,305 on the S&P500 before the Fed would cut the Fed funds rate,” BofA Merrill Lynch said.

“FMS investors are well-hedged but not positioned for a breakdown in trade talks. Also, investors see little reason to ‘buy in May’ unless the 3Cs – credit, the consumer, and China – quickly surprise to the upside,” said Michael Hartnett, chief investment strategist.

With regard to interest rates, 7 out of 10 expect interest rates to be broadly range-bound over the next year (between 2-3%), whereas only 4% expect yields to return to below 2%.

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