Fund managers are showing less optimism for global corporate profits, and are increasing cash allocations and reducing equity holdings as a result, according to Bank of America Merrill Lynch's monthly fund manager survey.
A major reason for derisking is that fund managers are now saying geopolitical risk is a greater risk to the stability of financial markets due to the Ukraine crisis.
A total of 27% of the 241 fund manager respondents to the survey from March 7 to March 13 said that a geopolitical crisis is the biggest tail risk, up from 12% in February.
A net 14% of fund managers are taking lower than average risk in March, up from a net 2% the previous month.
“It seems like (fund managers) are pretty worried about some of the geopolitical risk and emerging markets risk especially,” said Brian Leung, investment strategist at Bank of America Merrill Lynch, in a telephone interview. “Given the retrenchment this month, it makes us a little more bullish in the coming months, because people are a little more defensive than normal.”
A net 47% of regional fund managers in Asia-Pacific, Japan and global emerging markets expect China's economy to weaken in 2014, up from 41% in February, while the percentage of asset allocations that are underweight emerging markets rose to 31% this month, up two percentage points from February, a record low for the survey.
The 241 respondents manage a total of $636 billion in assets.
