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Managers bearish on global growth, but only enough to signal a short-term bounce in risk assets – BofA

Although investors have become the most bearish on global growth since 2008, they haven't become bearish enough to signal anything but a short-term uptick in risk assets, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.

This month, the average cash balance of managers remained steady at 5.1%, above the 10-year average of 4.5%. In addition, a record 85% of managers surveyed said they believe the global economy is in the late cycle, 11 percentage points above previous highs in December 2007.

When asked how the global economy will develop over the next year, a net 38% of respondents said they expect deceleration, representing the worst outlook on global growth since November 2008.

In terms of corporate earnings, a net 35% of managers responding to the survey indicated they do not expect an improvement of 10% or more in the next year. This is in stark contrast to results from February's survey that found a net 35% of respondents were expecting improvement.

A net 20% of investors surveyed think global profits will deteriorate in the next 12 months, a two-year low and a major reversal from January's survey, when a net 39% noted they expected an improvement.

For the fifth consecutive month, a possible trade war remains the biggest tail risk for managers, with 35% of respondents putting it at the top of their list of concerns. However, that concern continues to recede: Last month, 43% of respondents considered a trade war the biggest tail risk. The month before, it was 57% of respondents.

The top three are rounded out by quantitative tightening (31%) and a China slowdown (16%).

Managers' allocations to global equities held steady this month at a net 22% overweight, close to July's low of a net 19% overweight. Allocations to U.S. equities, meanwhile, dropped 17 percentage points to a net 4% overweight, making U.S. lose out to Japan as most favored region for equities. Finally, allocations to bonds dipped five percentage points to a net 50% underweight.

"Investors are bearish on global growth, but not bearish enough to signal anything but a short-term bounce in risk assets," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results.

The survey of 231 money managers representing a total of $646 billion in assets under management was conducted Oct. 5-11.