Although money managers continue to regard the U.S. as the most favorable region for equities for the second consecutive month, investors have become bearish on global growth, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
This month, a net 24% of the managers surveyed said they expect global growth to slow in the next year, up from a net 7% in August. This marks the most negative outlook on the global economy from managers since December 2011.
In terms of decoupling in the global economy, nearly half of survey participants — 48% — said they believe the current decoupling, in which U.S. growth has been higher than most other developed economies, will end because U.S. growth will begin to slow down, up 16 percentage points from last month. Meanwhile, 24% expect decoupling to continue, while 28% think Asia and Europe's growth will accelerate, down 6 percentage points from last month.
The U.S. continues to be the most favored equity region globally for the second month in a row as managers buy growth over value. Managers' allocations to U.S. equities inched up 2 percentage points to a net 21% overweight, the biggest overweight since January 2015.
In addition, when asked about regional expectations for corporate profits, a net 69% of managers surveyed said they found the U.S. to be the most favorable region, a record 17-year high.
The average cash balance of managers surveyed climbed to an 18-month high of 5.1% this month, up from 5% in August.
A possible trade war remains the biggest tail risk for managers for the fourth month in a row, with 43% of respondents putting it at the top of their list of concerns. However, that concern is receding: Last month, 57% of respondents considered a trade war the biggest tail risk.
The top three are rounded out by a China slowdown (18%) and quantitative tightening (15%).
Managers' allocations to global equities slid 11 percentage points to a net 22% overweight, close to July levels, which were the lowest in 18 months. Meanwhile, managers' allocations to eurozone equities were cut by 6 percentage points, to a net 11% overweight, an 18-month low.
This month's survey also saw a 9-percentage-point decrease in allocations to emerging markets equities, leaving allocations to the asset class at a net 10% underweight, the lowest since March 2016 and a huge reversal from the net 43% overweight in April 2018, when emerging markets was the most favored region among respondents.
"Investors are holding on to more cash, telling us they are bearish growth and bullish U.S. decoupling," Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in a news release about the survey results. "Fund managers are signaling that they are starting to price in a hawkish Fed."
The survey of 244 money managers representing a total of $742 billion in assets under management was conducted Sept. 7-13.