BAML Survey Finds “Extreme Bearishness” Amongst Fund Managers

By Glenn Dyer | More Articles by Glenn Dyer

Ahead of the US Fed’s interest rate statement tomorrow (Thursday morning), it is now quite clear that big investors around the world are getting very antsy.

Tuesday’s small rebound on Wall Street was more of a feline bounce than fair dinkum steadying and rise.

Given the slide in share prices since October, along with the prices of oil and other key commodities, it’s no wonder big global investors now have a growing taste for bonds and other safe havens (utility shares for example).

The monthly survey from Bank America Merrill Lynch shows a deep bearishness now grips big global investors who have headed for safe havens like bonds.

According to Bank of America Merrill Lynch’s (BAML) December survey of big professional investors around the globe, 53% of those surveyed see the global economy deteriorating over the next year, up from 44% in November, and the highest share of those surveyed since October 2008.

As a result, BAML said “Investors are approaching extreme bearishness. … This month’s survey [found] the biggest ever one-month rotation into the asset class” and that bond allocations grew by 23 percentage points over the past week. That’s the biggest increase on record.

Those investors reduced holdings in stocks by 15 percentage points over the same period, according to the data.of bonds, Bank of America Merrill Lynch said in the survey.

Despite the expectations for slowing global economic growth, most investors surveyed do not think there will be a recession in 2019. Only 9% of those surveyed expect an actual recession next year.

Investors cited a trade war as the biggest concern for the seventh consecutive month. Worsening economic conditions in China was another top risk.

In fact, 37% of them say that trade-war dynamics are the biggest risk to the economy in the coming months, twice as many as those who named either central bank quantitative easing or the slowdown of the Chinese economy.

Fund managers reckon the most crowded trade right now is being ‘long’ the US dollar, after 10 straight months in which the most popular trade was long FAANG+BAT stocks, an acronym that stands for the mega-techs Facebook, Apple, Amazon, Netflix, Google (Alphabet) and Chinese groups, Alibaba Holding Group and Tencent Holdings.

There was only a small rise in the cash holdings of the big fundies – up from 4.7% in November to 4.8% in December, According to BAML’s Michael Hartnett, this level is ”not enough to trigger a contrarian buy signal for risk assets.

This time around, according to Mr. Harnett, the fact that the dollar trade is crowded against a backdrop of bearishness towards stocks and global growth and the belief that the Federal Reserve is near the end of its tightening cycle means that investors see a “recession coming,” Harnett wrote in an analysis of the survey.

A BAML survey last week revealed that traders yanked a huge $US27.6 billion from shares in the week ended December 12, the second-largest outflow of all time.

On a global basis, a record $US39 billion was pulled from stocks worldwide over the same period.

It’s this caution that has seen that move into safe haven investments.

The December survey showed the biggest ever one-month rotation into bonds, along with large moves into defensive stocks like staples and utilities.

The survey was released the day the two US Federal Reserve key monetary policy committee met for the last time in 2018. It is expected to release an announcement early Thursday morning saying interest rates are going up again for a 4th time this year – but possibly the last move for a while.

Wall Street, along with most other markets around the world, are heading for their worst December for a decade or more.

Energy shares are under pressure as oil futures slide again.US West Texas Intermediate slipped under$US46 a barrel early Wednesday morning in Asia.

The survey was conducted December 7 to 13, with 243 investors answering questions. The group has nearly $US700 billion under management.

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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