Bullish sentiment may have abated, but that doesn’t mean investors are in retreat, according to Bank of America Merrill Lynch’s April fund manager survey.
Investors’ allocation to equities in April fell to an 18-month low of net 29%, down from net 41% overweight in March.
Moreover, their expectations for faster global growth continued to fall, with just a net 5% of fund managers expecting the global economy to be stronger in the next 12 months. Merrill said this marked the lowest level since Britons voted to leave the EU in June 2016.
Average cash balances jumped to 5% in April from 4.6% last month.
The fund manager cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities; when the cash balance falls below 3.5%, a contrarian sell signal is generated.
The net percent of investors who said they expected profits to improve over the next year fell to an 18-month low of just 20%. Earnings expectations fell 12 percentage points to net 8%, way off February’s net 35%.
The survey results showed that the net percentage of investors who wanted to see corporates improve their balance sheets remained at eight-year highs. A record net 33% said corporate balance sheets were overleveraged.
All these things aside, bulls have not been routed, the survey showed.
Only 13% of investors said a recession was in the offing, and a mere 18% said equities had already peaked. Forty percent expected a peak in the second half of this year, while 39% said equities would not peak until 2019 or later.