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BofA Merrill Lynch Fund Manager survey finds investor sentiment bearish on markets

July 2018

July 17, 2018 | 15:30 | Dubai – BofA Merrill Lynch July Fund Manager Survey finds investor sentiment bearish as growth and profit expectations plunge

Highlights include:

  • Average cash balance dips to 4.7% in July from 4.8% in June, still above the 10-year average of 4.5%
  • A trade war remains the biggest tail risk cited by respondents (60%), with investor conviction the highest since concerns surrounding EU sovereign debt funding in July 2012; the top three are rounded out by a Fed/ECB hawkish policy mistake (19%) and a Euro/EM debt crisis (6%)
  • Net -11% of respondents expect faster global growth in the next 12 months, down 12ppt from last month and the lowest level since February 11, 2016 when the S&P hit an intraday low of 1810
  • When asked their expectations for global profits, net 9% of respondents indicate they do not expect an improvement in the next 12 months, down 53ppt from the beginning of the year and the lowest level since February 2016
  • Net 11% of those surveyed do not think corporate earnings will improve by 10% or more over the next year, a significant downward swing from net 35% thinking they would in February 2018
  • “Long FAANG+BAT” (53%) remains the most crowded trade identified by investors for the sixth straight month and most crowded trade outright since “Long USD” in January 2017; the top three in July are rounded out by “Short EM equity” (12%) and Long oil (10%)
  • Allocation to tech rebounds 10ppt to net 33% overweight, making it the most favoured sector this month; allocation to banks collapses 17ppt to net 3% overweight, totalling a 33ppt drop in banks allocation over two months
  • Allocation to commodities remains near the 8-year high from last month, ticking down 1ppt to net 6% overweight
  • Net 25% of those surveyed say oil is overvalued, up 7ppt from last month and the highest level since April 2012, when WTI averaged $103/bbl
  • A record net 17% of respondents think gold is undervalued
  • Net 18% of survey participants think the JPY is undervalued, down 11ppt from last month and the cheapest valuation since October 2008
  • Global equity allocation falls 14ppt to net 19% overweight, the lowest level since November 2016; this month’s survey finds notable shifts in regional equity allocations:
  • Allocation to US equities leaps 8ppt to 9% overweight, the highest since February 2017, having been 28% net underweight in September 2017
  • A large drop (8ppt) in Eurozone equities allocation this month leaves allocation at net 12% overweight, the lowest level since December 2016
  • The largest monthly drop in emerging market equities in 2 years brings EM equities allocation down 23ppt to net 1% underweight
  • Allocation to UK equities increases 3ppt and for the 5thstraight month to net 18% underweight, its highest level since February 2016

“Investor sentiment is bearish this month, with survey respondents eyeing the risks from a possible trade war,” said Michael Hartnett, chief investment strategist. “Equity allocation has fallen notably while growth and profit expectations have slumped.”

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