Money managers are very pessimistic about global economic growth, due to concerns over trade wars and a possible recession, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
Of the managers surveyed, a net 50% expect global growth to weaken over the next year, down 46 percentage points from last month — a record high. Meanwhile, 87% of investors surveyed say the global economy is in the late cycle — also a record high.
Meanwhile, the percentage of investors expecting higher short-term rates has dropped to net -10%, the lowest level since 2008.
A net 41% of investors surveyed expect earnings per share to deteriorate in the next year, the second biggest monthly collapse in the survey's 23-year history.
Only 9% of managers expect higher the global consumer price index to move higher in the next year, down 30 percentage points from last month and the most bearish inflation outlook since August 2012.
The average cash balance rose to 5.6% from 4.6% for each of the last three months, marking the biggest jump in cash since the debt ceiling crisis in 2011. Investor allocation to cash jumped 10 percentage points from last month to net 43% overweight.
Meanwhile, the average allocation to global equities dropped 32 percentage points to net 21% underweight, the lowest allocation to equities since March 2009 and second biggest one-month drop on record.
Bond allocations went up 12 percentage points to net 22% underweight, the highest level since September 2011, as dovish central banks, falling inflation expectations and a risk-off sentiment continue to drive interest rates lower.
The June survey found investors have rotated to defensive plays (staples, utilities, bonds and cash) from cyclical ones (equities, banks, Europe and tech).
A record net 60% of investors surveyed find the U.S. dollar overvalued, up 16 percentage points from the month before.
More than half of respondents (56%) cite a trade war as the top of their list of biggest concerns, up 19 percentage points from the month before. Monetary policy impotence (11%), U.S. politics (9%) and a slowdown in China (9%) also top the list of investor concerns.
"Investors have not been this bearish since the global financial crisis, with pessimism driven by trade war and recession concerns," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "The tactical 'pain trade' is higher yields and higher stocks, particularly if the Fed cuts rates on Wednesday."
The survey of 230 money managers representing a total of $645 billion in assets under management was conducted June 7-13.