Global investors are reducing their equity holdings and bulking up on cash as concerns over China and weakness in emerging markets grows.
According to the latest Bank of America Merrill Lynch Fund Manager Survey for September, the “threat of recession in China” is the biggest concern as well as a debt crisis in emerging markets. As a result, the number of funds that were “overweight” with stocks is down 24 percentage points, the survey showed. The poll, which gauges the sentiment of fund managers who collectively manage nearly $600 billion in assets, also showed that their cash balances “are back up to 2008 crisis level of 5.5 percent.”
“Hedge fund net exposure and perception of market liquidity conditions are both at the lowest level in three years,” the report stated.
Michael Hartnett, chief investment strategist at the firm said investors “were already positioned for lower growth in China and emerging markets, but their risk-off stance has intensified. Contrarians will be noting the aggressive underweight positioning in emerging markets.”
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And as they pull back on investments in emerging markets, the survey showed that European equities remain attractive.
In a separate research report by IHS chief economist Nariman Behravesh, the outlook for developed countries remains stable. “The ‘rolling routs’ in global financial and commodity markets will adversely impact the emerging world, while growth in the developed economies continues to show signs of strength, albeit still modest and tentative,” he said. “Four trends have driven this divergence: debt and de-leveraging; the plunge in oil and other commodity prices; central banks’ actions, and the rise of the U.S. dollar.”