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Global investors have moved out of equities into cash ahead of an expected US Fed rate hike, according to June's BofA-ML Fund Manager Survey (FMS). Investors have also shown concern about a Greek default and a possible bubble in Chinese equities as they have scaled back risk.
Exposure to EM equities has also reduced as global investors see weak earnings prospects, weak China economic growth, a strong dollar and higher bond yields.
Also Read: Euro slumps amid Greek stand-off, $ up ahead of Fed
An overall total of 207 panellists with $562 billion of assets under management participated in the survey from 5 June to 11 June 2015. A total of 94 managers, managing $211 billion, participated in the regional surveys.
ASIAN MARKETS
AsiaPac investors increased net overweight allocations to India and Taiwan in June, survey findings suggest.
Sentiment toward China and Hong Kong reduced as the net overweight for China fell and investors moved net underweight Hong Kong. Thailand that moved to a small overweight position this month, ASEAN remains unloved by investors. Australia, on the other hand, remains a consensus underweight with investors increasing their net underweight positions in June.
In the Asian region, with the Shanghai Stock Exchange Composite Index up about 150% in the last year with no sign of an earnings revival, 70% of global investors believe China equities are in a "bubble".
GEM investors probably do not expect the crude rally to continue as they increased their net underweight in Energy. Other late cyclical sectors, however, decreased their net underweight positions Investors scaled back their net overweight positions in defensives (Telcos, Healthcare, Utilities) in June. Tech and discretionary maintained their net overweight positions.
US Fed hike, GREXIT
The survey also suggests that 54% of global investors expect the US Federal Reserve (US Fed) to raise rates in September, up from 45% last month. Cash levels have spiked to 4.9% (highest since January), the survey findings show.
"Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
Also Read: Sturdy US jobs report boosts chances of Fed rate hike
James Barty, head of European equity strategy believes investors remain bullish on European equities but are increasingly concerned about Greece and higher yields.
43% of fund managers expect positive Greek outcome, 42% expect Greece to default but remain in the Eurozone, and 15% expect Greece to pull out.
"Global fund managers are bracing for greater volatility and tail risks in equity markets over the next three-months, with only net -25% taking out protection against equity market corrections - record reading in the survey. We believe a peaceful Greek outcome is a necessary condition for a rally," BofA-ML says.
In terms risk, 21% of the fund managers surveyed believed geopolitics to be the biggest tail risks, while 18% suggested Eurozone breakdown. In addition, 72% of survey participants think the euro will weaken vs dollar in the coming year. Allocation to Eurozone equities dips to net 46% overweight (from net 49% overweight last month), findings suggest.
