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Investors Boost Cash on Threats of Rate Hike, Greek Exit: BofA Merrill

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Global investors have retreated to cash in anticipation of a rate hike by the U.S. Federal Reserve and worries about developments in Greece and China, according to the BofA Merrill Lynch fund manager survey for June.

The survey found that cash levels had risen to 4.9% of portfolios, up from 4.5% in May, and that the proportion of investors overweight equities had fallen to net 38% from 47%.

Expectations of a rate hike in the new survey were the highest since May 2011, with 80% of respondents forecasting a rise in short-term rates.

“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten,” Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch Global Research, said in a statement.

A total of 207 panelists with $562 billion of assets under management participated in global and local surveys conducted in early June by BofA Merrill Lynch and the market research company TNS.

A majority of panelists expected a negative outcome for the fraught Greece negotiations, with 15% predicting Athens would pull out of the euro — a so-called Grexit — and 42% predicting default without exit.

China was also on panelists’ minds, with 70% of investors saying the country’s equity market was in a bubble, and 50% expecting the country’s economy to weaken.

In addition, global emerging markets lost favor, as the proportion of investors expecting to underweight those markets surged to a net 21% from net 6% in May.

Seventeen percent of investors said corporate operating margins would fall over the next 12 months, up from 5% who said this in May.

The survey found that the U.S. dollar was the most crowded trade as Fed tightening looms, with 72% of respondents predicting that the euro would weaken versus the greenback in coming 12 months.

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