Growing tension in Ukraine and the prospect of widespread geopolitical instability have unnerved global investors, moving them toward a “risk-off” stance, Bank of America-Merrill Lynch found in its March Fund Manager Survey.
Eighty-one percent of investors saw geopolitical risk posing a threat to financial markets stability, more than four times the reading one month ago. Twenty-seven percent of respondents said a geopolitical crisis was the biggest tail risk, up from 12% in February.
At the same time, global asset allocators continued to express concern about prospects for emerging markets, with sentiment toward China’s economy falling further.
BofA Merrill Lynch Research with help from TNS, a market research outfit, surveyed 241 fund managers with $636 billion of assets under management from March 7 to March 13.
Fourteen percent of fund managers surveyed were taking lower-than-average risk in March, up from 2% in February. Sixteen percent said they were overweight cash, up from 12% last month. Average cash balances remained high at 4.8% of portfolios.
The proportion of asset allocators that were overweight equities dropped by nine percentage points month-on-month to 36%. Demand for protection against sharp falls in equity markets increased to its highest level in 22 months, the report said.
The survey found investors less confident in a vibrant recovery in corporate profit growth. Forty percent of respondents believed that global profits would improve in the coming 12 months, down from 45% in February.
Twelve percent said it was unlikely corporate profits would rise by 10% or more in the year ahead, up from 4% of respondents taking that view in February.
At the same time, investor demand for companies to borrow and invest eased since February. Thirty-four percent of respondents said corporate balance sheets were underleveraged, down from 40% last month. Sixty-three percent believed that companies were underinvesting, down from March’s high of 67%.