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Investors Stampede to Cash on China Concerns, BofA Merrill Survey Finds

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A lot can happen in a month. Between June and July, investors accelerated their retreat to cash as their confidence in the global economy plunged, according to the latest BofA Merrill Lynch Fund Manager Survey, released Tuesday.

The July survey found that only 42% of investors expected the global economy to strengthen in the next 12 months, down from 55% a month ago.

China was investors’ top-of-mind concern, as a net 62% expected the economy to weaken over the next year. Indeed, some 80% of respondents saw China’s GDP below 6% by 2018.

Cash levels in July soared to 5.5% of portfolios—their highest level since 2008—up from 4.9% in the June survey.

And for the first time in five years, gold was considered undervalued.

“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in a statement.

A total of 191 panelists with $510 billion of assets under management participated in global and regional surveys in early July conducted by BofA Merrill Lynch Global Research and the market research company TNS.

Assets linked to China suffered because of increased pessimism on the country’s economy, according to the survey.

Commodity allocations fell to a six-month low, and global emerging market equities allocations were at a 16-month low.

In contrast, investors’ appetite for European stocks rose in July, even though many now saw a potential breakdown of the Eurozone as the biggest “tail risk.”

“Despite the Greek news flow, intention to own European assets is high and rising, though global growth remains vitally important for European stocks,” European equity strategist Manish Kabra said in a statement.

Investors in the July survey still considered bonds much more overvalued than equities, and more at risk of volatility-driven crash. Equity overweights rose to net 42%, up from 38% in the June survey.

U.S. dollar bullishness strengthened in July despite postponement of an expected U.S. rate rise to the fourth quarter or later, replacing the June consensus of a third quarter rate hike.

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