Fears of a global economic slowdown have come sharply back into focus, and expectations of decisive action by policy makers have grown, according to the BofA Merrill Lynch Survey of Fund Managers for June.
A net 11% of the global panel believes that the global economy will deteriorate in the coming 12 months – the weakest reading since December 2011.
Last month, a net 15% believed the economy would strengthen and the negative swing of 26%age points is the biggest since July-August 2011 as the sovereign crisis built. The outlook for corporate profits has suffered a similarly negative swing. A net 19% of the panel believes that corporate profits will fall in the coming 12 months. Last month, a net 1% predicted improving corporate profits.
Investors have adopted aggressively “risk off” positions. Average cash balances are at their highest level since the depth of the credit crisis in January 2009 at 5.3% of portfolios, up from 4.7% in May. The Risk & Liquidity Composite Indicator fell to 30 points, versus an average of 40.
Asset allocators have moved to a net underweight position in global equities and increased bond allocations. Support for policy stimulus has grown. The majority of the panel now believes that global monetary policy is “too restrictive.” A net 6% take that view, the highest since December 2008. A net 15% said policy was “too stimulative” in May. The proportion of global investors saying global fiscal policy is “too restrictive” has continued to rise to a net 28% from a net 23% in May. “Investors have taken extreme ‘risk off’ positions and equities are oversold, but we have yet to see full capitulation.
Low allocations in Europe are in line with perceptions of growing risk levels in the Eurozone,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research. “Hopes expressed last month of a policy response have now become expectations. Markets are keenly anticipating decisive action from key policy meetings in June,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.