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BofA: Managers still holding cash despite rising optimism on global growth

Money managers remain optimistic on global growth and inflation but are hesitant to cut their cash holdings, according to Bank of America Merrill Lynch's monthly fund manager survey released on Tuesday.

The January survey found that a net 62% of managers expect the global economy to improve over the next year, the highest reading in two years and up from a net 57% in December, while a net 83% expect a higher global consumer price index over the next year, compared to 84% last month.

At the same time, however, average cash holdings rose to 5.1% of managers' portfolios in January, up from 4.8% in December.

“Ahead of the U.S. presidential inauguration (on Jan. 20), investors are positioned for stronger growth and inflation, but are not willing to turn fully bullish with China-related risks on the horizon,” according to Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release on the survey results.

A China foreign-exchange devaluation/property bubble was cited as the biggest tail risk by 15% of investors in January, behind trade war/protectionism at 29% and U.S. policy error at 24%.

The January survey also found:

  • 17% of investors expect above-trend growth and inflation over the next 12 months, up from 12% in December;
  • Global equity, eurozone equity and U.K. equity allocations rose to a net 39% overweight, a net 17% and a net 24% underweight, respectively, up from a net 31% overweight, a net 1% underweight and a net 29% underweight last month;
  • U.S. equity and emerging markets equity allocations fell to a net 14% overweight and net 6% underweight, respectively, down from net overweights of 15% and 3% last month. Meanwhile, Japanese equity allocations remained stable at a net 21% overweight.
  • Global bond and commodity allocations fell to net underweights of 63% and 3%, respectively, down from a net 58% underweight and a net 5% overweight in December.
  • A net 13% of investors think the euro is undervalued, the highest reading since April 2003, while a net 22% think the U.S. dollar is overvalued, the highest reading since November 2006.

The survey of 215 money managers representing $547 billion in assets under management was conducted Jan. 6-12.