Global Investors Maintain Tech, Home Bias

By Glenn Dyer | More Articles by Glenn Dyer

No sign of any pullback by big global investors, more a redirection of focus to America in the latest Bank America Merrill Lynch (BAML) survey of big global investors.

So attracted are they to US shares that the overweight position is the highest since the start of 2015, so confident have they become in the outlook for the US.

In total, 243 investors managing $US735 billion of assets were questioned in the latest survey which also found that these big fund managers are also more pessimistic about the outlook for corporate profit growth than they have been quite a while.

In fact the survey reveals there has been a significant swing to the negative with cash on hand still above the long term level of 4.5% of their portfolios.

This is despite better than expected second quarter reports from many large US companies – excepting the likes of Facebook and Netflix which disappointed many investors (compared to the reports from Apple, some big banks and Amazon which have kept the Wall Street boomlet ticking over).

But American shares are flavour of the month with a net 67% of those surveyed in BAML’s August global fund manager survey saying the profit outlook in the US was the most favourable of all global regions, a record 17-year high.

The most crowded trade, for the seventh straight month, was in the FAANG and BAT stocks (Facebook, Amazon, Apple, Netflix, Google, and Baidu, Alibaba, Tencent); shorting US Treasuries was the third most crowded trade, offering further evidence of the widespread anticipation in the markets of solid US economic growth for the rest of this year.

Many investors have turned negative on other markets and cut their exposures. For example the most popular negative bet was in was emerging market equities, a view supported by what has happened in the past 10 days.

BAML said the survey was conducted before the Turkey-fuelled emerging markets sell-off fully took hold.

On top of running short positions in US bonds, big investors have rediscovered a liking for bank stocks (which probably helps explain the recent rebound in Australian bank shares) as they believe the US Federal Reserve will continue lifting rates.

But there was a major negative from the survey which suggests that this enthusiasm for stocks might start waning.

The survey suggests that a growing number of investors think the current period is the peak for corporate financial performance and they will soon start coming under pressure.

Only a net 5% of those surveyed think global profits will improve in the coming 12 months, down from a net 44% in January this year.

But investors do remain cautious – cash holdings are back at 5% from 4.7% in July which above the long term level of 4.5%. They have been around this range since late 2017.

Michael Hartnett, BofAML chief investment strategist, said: “Rising corporate leverage concerns say bonds should outperform stocks, while a weaker profit outlook suggests defensives could outperform cyclicals. With investors telling us they are long the US, the Fed and cash, our view remains: peak profits, policy and returns.”

The biggest tail risk identified by investors was a trade war, for the third month in a row; quantitative tightening and a China slowdown were also commonly cited potential risks.

Interestingly confidence in the UK has soured notably on rising fears of a nasty, hard Brexit next March.

Fund manager allocations to UK shares are seeing their biggest month-on-month fall since just before the country’s referendum on membership of the EU in June 2016, on fears of no agreement between the UK and the UK on Brexit and life after next March.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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