Money managers’ outlook on the global economy is weakening amid continued concerns over a Chinese recession, said Bank of America Merrill Lynch’s monthly fund manager survey.
A net 53% of managers believe the global economy will strengthen over the next 12 months, down from 61% in July.
One reason for the less optimistic outlook is China. A net 52% of respondents rated a China recession as the No. 1 tail risk. Last month, investors cited a eurozone breakdown as the No. 1 tail risk.
August’s survey also found the lowest allocation to emerging markets equities since April 2001, with a net 32% underweight the region and the lowest allocation to energy, with a net 30% underweight the sector.
Cash levels also remain high. Average cash levels were 5.2% in August, down from last month’s high of 5.5% but up from 4.9% in June and 4.5% in May.
Managers remain positive on Europe and Japan, however, with a net 47% overweight eurozone equities, the highest reading in three months, and up from a net 40% in July, and a net 40% overweight Japanese equities, up from a net 37% last month.
This month’s survey also found a rising consensus over a third-quarter U.S. interest rate hike. A net 48% expect the Federal Reserve to raise interest rates in the third quarter, compared to a net 39% who expect a rate hike in the fourth quarter and a net 10% who predict a rate hike in 2016 or later. Last month, more managers expected a fourth-quarter rate hike as opposed to raising it in the third quarter.
The survey of 202 money managers representing $574 billion in assets under management was conducted between Aug. 7 and Aug. 13.