A chill has run down investors’ backs over the past month, according to Bank of America Merrill Lynch’s June global fund managers survey.
“FMS investors have not been this bearish since the global financial crisis, with pessimism driven by trade war and recession concerns,” Merrill’s chief investment strategist Michael Hartnett said in a statement.
“The tactical ‘pain trade’ is higher yields and higher stocks, particularly if the Fed cuts rates on Wednesday.”
The survey was conducted June 7 to 13 among 230 panelists with $645 billion in assets under management.
Investor concerns about a trade war increased by 19 percentage points from the May survey, with 56% of respondents naming it the top tail risk to the market. A potential trade war has topped the list for 14 of the last 16 months.
Other risks paled by comparison: monetary policy impotence, cited by 11% of fund managers; U.S. politics, 9%; and a slowdown in China, 9%.
Allocation to global equities fell by 32 points in the June survey to net 21% underweight, the lowest allocation to equities since March 2009 and second biggest drop in the survey’s 23-year history, Merrill said.
Emerging market equities remained the consensus regional allocation, despite falling 13 points to 21% overweight, followed by U.S. equities, which edged up three points to 5% overweight.
Investors’ average cash balance soared to 5.6% from 4.6% in the May survey, the biggest jump in cash since the 2011 debt ceiling crisis. The fund manager cash rule has now been in “buy” territory for the past 16 months, according to Merrill.
This 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.