One year ago, global investors were a bullish lot: long Bitcoin, which hit $19,611 on Dec 19, global stocks and banks, and short bonds and defensives.
As 2018 draws to a close, they have turned bearish, according to the latest Bank of America Merrill Lynch global fund manager survey: long cash, the U.S. dollar and defensives, and short global stocks, tech and industrials.
“Investors are close to extreme bearishness,” Merrill’s chief investment strategist Michael Hartnett said Tuesday in a statement. “All eyes are on the Fed this week, and a dovish message could equal a bear market bounce.”
Merrill conducted the survey in early December among 243 panelists with $694 billion in assets under management.
The survey found that net 53% of fund managers expected global growth to weaken over the next 12 months, the worst outlook on the global economy since October 2008.
At the same time, only 9% of investors expected a global economic recession in 2019, down two percentage points from the November survey.
The December poll showed the third biggest decline in inflation expectations, down 33 points to net 37% expecting the global consumer price index to rise over the next year — a big reversal from the April peak of net 82%.
The new survey found the biggest ever one-month rotation into bonds, as investors’ allocation rose 23 points to net 35% underweight, the highest bond allocation since the June 2016 Brexit vote.
Fund managers’ average cash balance ticked up slightly to 4.8% in December from 4.7% 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.