Investors With $575 Billion Approach ‘Extreme Bearishness’

(Bloomberg) -- Investors approaching “extreme bearishness” on the market and growth outlook and are pouring their cash into bonds, according to the latest survey from Bank of America Merrill Lynch.

Money managers have increased their allocation to the asset class by 23 percentage points, the biggest ever one-month rotation, according to the bank’s global fund manager survey published Tuesday. More than half of those responding -- 53 percent -- now reckon global expansion will slow over then next 12 months, the worst outlook on the economy since 2008, Bank of America says.

Investors With $575 Billion Approach ‘Extreme Bearishness’

The greater allocation to bonds comes as inflation expectations slide, with almost two thirds of respondents saying world consumer prices won’t rise next year. The equity rout that has put global stocks on a path for one of the worst Decembers on record provided further impetus: The allocation to equities dropped 15 percentage points to a two-year low.

“All eyes are on the Fed this week,” Michael Hartnett, Bank of America’s chief investment strategist, wrote in the report. “A dovish message could equal a bear market bounce.”

Also in the poll, which canvassed investors with some $575 billion under management:

  • Net 46 percent of fund managers surveyed think corporate balance sheets are overleveraged, the highest on record.
  • Average cash balance ticks up slightly to 4.8 percent, up from 4.7 percent from last month.
  • Allocation to global equities falls 15 percentage points to a two-year low of net 16 percent overweight.
  • Worst profits outlook in a decade, with net 47 percent of investors expecting global profits to deteriorate in the next 12 months.
  • For the first time since January, Long FAANG+BAT (20 percent) is no longer the most crowded trade cited by investors, replaced this month by Long USD (25 percent).

And in terms of the biggest tail risk fears, the trade war topped the list of worries. Quantitative tightening and a slowdown in China were a distant second and third.

The survey was conducted between Dec. 7 and Dec. 13, with the global version polling 190 participants.

©2018 Bloomberg L.P.