Money managers are continuing to increase their cash holdings due to a weaker global economic outlook, particularly in China, said Bank of America Merrill Lynch's latest monthly fund manager survey.
Overall confidence in the global economic outlook dropped sharply in the last month, with 42% of managers saying the global economy will strengthen over the next year, down from 55% in June.
The primary reason for that less optimistic outlook is China: a net 62% of survey respondents expect that economy to weaken over the next year, and 71% believe that China's equity markets are in a “bubble,” up from 69% the previous month.
As a result, average cash holdings jumped to 5.5%, up from 4.9% in June and 4.5% in May, a level the survey says is the highest since the financial crisis.
“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release.
Overall, 26% of respondents say the biggest tail risk is eurozone breakdown, up from 18% in June. Some 21% fear a China debt default, although that number saw a significant rise from the 12% in June that thought a China debt default was the biggest tail risk.
The survey of 191 money managers representing $510 billion in assets under management was conducted between July 2 and July 9.