Despite The Bounce, Shares Still Worry Big Investors

By Glenn Dyer | More Articles by Glenn Dyer

Big global fund managers remain bearish nearly three months into 2019 despite the rebound in shares since the start of the year that has seen major markets up 10% to more than 20% (in the case of China).

It’s as though that these big money managers have allowed the boomlet to go without them on board as they continue to cut their exposure to equities in particular.

According to the March survey of big global managers from Bank of America Merrill Lynch (BAML) managers allocated the smaller share of their holdings to equities since at any point since 2016.

This, BAML reckons is a good sign these managers are now embracing the theory of “secular stagnation.” (That’s slow economic growth, weak demand, solid employment and continuing low levels of inflation) as opposed to stagflation which is slow or no growth, lots of jobless and rising or high levels of inflation)

”There is simply no ‘greed’ to sell in equities,” wrote Michael Hartnett, chief investment strategist in BAML’s March report. Short term performance seems not to be a priority – defense is.

“Investors are long defensive assets that perform well when growth and rates fall, and short cyclical assets that perform well when growth and rates rise.”

“Fifty-nine percent of investors surveyed by Bank of America “are bearish on both the growth and inflation outlook for the next 12 months, the highest since October 2016, cementing the return of secular stagnation as the consensus view,” Hartnett said.

Figures released last week by BAML in separate research revealed that despite a surge in inflows last week, global equity funds have seen $US46 billion in outflows so far in 2019.

Despite that shares have enjoyed a rebound since the lows around Christmas Eve last year. The S&P 500 up more than 13% since the end of last year; the Dow is up 11.5%, Nasdaq is up more than 16%, Europe’s Stock index is up almost 14%, The Shanghai market close to 24%, and the ASX 200 9.4% (a laggard in comparison).

And while investors are now recasting portfolios for a slower period of growth, there are no expectations of a recession, according to BAML.

Within equities, investors are “long secular stagnation plays via technology, health care, discretionary, and are underweight utilities as well as cyclical sectors via industrials and materials,” Hartnett wrote.

BAML’s survey shows the biggest continuing risk is again the health of the Chinese economy.

BAML analysts said that concerns about China are rising independently of fears the state of global trade, especially the trade war with the US.

BAML said 30% of respondents named a slowdown in China as their top worry, versus just 19% who named the “trade war.” Still, that’s nearly half of the managers surveyed who have some fear linked to the health of the Chinese economy.

That’s a reversal from the February survey when a plurality of respondents named the “trade war” as the biggest tail risk threatening markets.

Officials from the US are going to China next week to try and push the talks towards a conclusion in April for a summit between Presidents Trump and Xi.

But there are now reports that China wants to excise the troubled Boeing 737 Maxx airliner from any deal because of fears about its safety after the fatal crashes in Indonesia and Ethiopia.

That could complicate the trade deal because airliners are the one big-ticket trade item the US wants China to buy more of – China’s airlines collectively already account for the largest share of the 5,000 or so orders for the still grounded Boeing passenger jet.

The safety problems and concerns about the way the US handled the grounding of the jet last week mean the 737 Maxx could become a sore point in the trade talks.

BAML said it conducted the survey between March 8 and 14 and is based on responses from 239 panelists with $US664 billion in assets 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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