Managers’ confidence in the global economy dropped sharply in September amid continued concerns about the possibility of a Chinese recession and emerging market debt default, said Bank of America Merrill Lynch’s latest monthly fund manager survey.
A net 75% of respondents rated a Chinese recession or emerging market default as the biggest tail risks this month.
In response, managers are increasing their cash holdings and reducing allocations to higher-risk assets. Average cash holdings are back up to 2008’s financial crisis level of 5.5%, and up from 5.2% in August. September’s survey also found the highest allocation to bonds since May 2013 with a net 50% underweight the asset class.
On the flip side, managers in September reported the lowest allocation to emerging markets equities and energy in the survey’s 14-year history, with a net 34% and 33% underweight emerging markets equities and the energy sector, respectively. Similarly, a net 17% reported being overweight global equities, the lowest allocation in three years and down from a net 41% last month. Hedge fund gross asset exposure is also the lowest since June 2012.
Finally, the September survey found more managers expect a fourth-quarter U.S. interest rate hike. Last month, more managers expected a third-quarter hike.
The survey of 214 money managers representing $593 billion in assets under management was conducted between Sept. 4 and Sept. 10.