Allocations to equities dropped to their lowest level since September 2016 despite profit expectations rising, rate expectations falling and cash levels dropping among investors, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
A net 25% of surveyed money managers this month expect global growth to weaken over the next 12 months, up 22 percentage points from the previous month. Meanwhile, 59% of managers are bearish on both the growth and inflation outlook for the global economy over the next 12 months, the highest since October 2016, cementing the return of secular stagnation as the consensus view among investors.
This month saw a slight uptick in inflation expectations, with a net 34% expecting the global consumer price index to rise over the next year, up 13 percentage points from February.
Of those surveyed, 55% believe the Federal Reserve will continue to hike interest rates, while 38% think the hiking cycle is done. In last month's survey, a net 29% of respondents put a possible trade war as the biggest possible tail risk, followed by a China slowdown (21%) and a corporate credit crunch (12%).
Meanwhile, only a net 28% of those surveyed think short-term rates will rise in the next 12 months, a six-year low.
A net 50% of managers feel the U.S. dollar is overvalued, a 16-year high, while a net 38% say the British pound is undervalued, the lowest valuation since the question was first asked in 2002.
Allocations to global equities continued to fall to a net 3% overweight, the lowest level since September 2016.
A net 30% of hedge fund investors surveyed said they were net long equities, the lowest level since December 2016.
A slowdown in China leads the list of biggest tail risks for managers, with a net 30% of respondents putting it at the top of a list of concerns, finally usurping a possible trade war (19%) as their chief concern, which had topped the list for the past nine months. A corporate credit crunch (10%) remains third on the list of top concerns.
The average cash balance fell 0.2 percentage points to 4.6% this month from 4.8% last month, showing an improved appetite for risk among investors. Managers' allocation to cash fells 4 percentage points to net 40% overweight, down from last month's decade-long high.
"The pain trade for stocks is still up," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "Despite rising profit expectations, lower rate expectations and falling cash levels, stock allocations continue to drop. There is simply no greed to sell in equities."
The survey of 239 money managers representing a total of $664 billion in assets under management was conducted March 8-14.