The latest Bank of America Merrill Lynch (BofAML) fund manager survey for June reveals bearish outlook dominating the financial markets.
This negative outlook is evident in a number of trends. First, the allocation to global equities has dropped 32 percentage points to 21 percent underweight – the lowest allocation to equities since March 2009 and second biggest one-month drop on record.
Second, the average cash balance has soared to 5.6 percent from 4.6 percent for each of the last three months, marking the biggest jump in cash since the debt-ceiling crisis in 2011 with the allocation to cash jumping to 43 percent overweight.
Third, bond allocation has risen 12 percentage points to 22 percent underweight – the highest level since September 2011 – as dovish central banks, falling inflation expectations and a risk-off sentiment drive interest rates lower.
Fourth, expanding on the above, this month’s survey finds investors have rotated from cyclical plays – equities, banks, Europe, tech – into defensive ones: staples, utilities, bonds and cash.
Furthermore, global growth expectations have collapsed by a record 46 percentage points from last month, with 50 percent of investors surveyed expecting global growth to weaken over the next year, and a record high 87 percent of investors saying the global economy is in the ‘late cycle’ – the last cycle before a full-blown recession kicks in.
Interest rate expectations have also collapsed: in just eight months, the percentage of investors expecting higher shorter rates has flipped from 89 percent to 10 percent – the lowest level since 2008.
Global profit expectations have plummeted 40 percentage points to 41 percent of investors surveyed expecting the earnings per share to deteriorate in the next year, the second biggest one-month collapse in the 23-year history of the fund manager survey.
Just 9 percent of fund managers expect a higher global consumer price index – the weighted average of prices of consumer goods and services – in the next year, down 30 percentage points from last month and the most bearish inflation outlook since August 2012.
On the risks side, concerns about a trade war have soared, with 56 percent of investors surveyed naming it the top tail risk to the market, up 19 percentage points from last month and topping the list for 14 of the last 16 months.
Other risks cited include monetary policy impotence (11 percent), US politics (9 percent) and a slowdown in China (9 percent).
Long US treasuries (27 percent) replaces long US tech (26 percent) as the most crowded trade cited by investors for the first time ever, ahead of long US dollar (18 percent) and short European equities (9 percent).
‘Investors have not been this bearish since the  global financial crisis, with pessimism driven by trade war and recession concerns,’ warns Michael Hartnett, chief investment strategist at BofAML, in a statement.