Investors long on cash, deflation & dollar, says BoAML fund manager survey

The oil price collapse has led to big rotation out of energy & materials, into US dollar, cash, Eurozone, global tech & discretionary stocks

A Bank of America Merrill Lynch global fund managers’ survey suggests the appetite for risky assets (equities) has fallen, owing to the rising spectre of deflation. It adds the fall in oil prices has led to a churn in investor preference — from energy and materials into the dollar, euro zone and global technology and discretionary stocks.

Now, the consensus preference is being long on deflation, cash and the dollar and short on inflation, risk and commodities. While 67 per cent of the fund managers surveyed said equities would be the best-performing class in 2015, 22 per cent believed currencies and commodities would fare the best; four per cent favoured government bonds and two per cent corporate bonds.

For investors in the Asia-Pacific region, India continues to be the top pick within global emerging markets and Asia.

According to the survey, the primary risk to the global economy was deflation, as was seen during the recent fall in oil prices, with demand unlikely to match the rise in supply.

The survey adds it is surprising that the allocation to global emerging market equities has increased to a net one per cent overweight from neutral last month. However, the allocation to emerging-market equities is below the long-term average. A total of 23 per cent of those surveyed believe the biggest risk to global markets will be from geopolitics, while 22 per cent believe it will be from deflation in the euro zone; 16 per cent believe China debt defaults could pose a risk in 2015.