Helen Reid –
Global investors remain overwhelmingly bullish on US and Chinese tech shares, while short positions on emerging equities are growing increasingly popular, Bank of America Merrill Lynch’s latest monthly fund manager survey showed.
Investors picked “Long FAANG and BAT” as the “most crowded” trade for the seventh straight month, BAML’s August survey found, referring to US tech giants Facebook, Amazon, Apple, Netflix and Google, and China’s Baidu, Alibaba and Tencent.
Tech has kept its crown, even though results-driven declines by Facebook and Twitter last month triggered anxiety over the mega-cap stocks responsible for the lion’s share of stock market gains in the US and China.
Going short emerging-market equities was the second most popular trade, according to the survey, which was conducted between August 3 and August 9 — just before Turkey’s lira plunged 16 per cent against the dollar on Friday.
Investors had a small underweight on EM equities, but BAML said prior EM crisis lows saw investors’ underweight at -27 per cent, versus -1 per cent today — suggesting investors could slash allocations a lot further from here.
Sponsored Among risks to global markets, investors said for the third month in a row that trade war was the most concerning.
They continued to position for a global monetary tightening cycle led by the US Federal Reserve.
A net 54 per cent of investors were underweight bonds, while 20 per cent were overweight global banks, which gain from higher interest rates.
Overall, global investors became more cautious in August, raising their cash allocation to 5 per cent from 4.7 per cent.
The increased caution was tempered with a more positive outlook on the profit cycle, with a net 5 per cent saying profits will improve.
European fund managers were relatively more bullish, cutting their cash allocations to 4.3 per cent from 5 per cent.
The proportion of European investors expecting stronger economic growth rose to the highest since April, and the share expecting a recession in the next 12 months also fell to its second lowest ever.
Investors’ allocation to US equities rose to the biggest overweight since January 2015, making the US the top equity region for the first time in five years as Wall Street stocks delivered strong earnings.
The US was the most favourable region in terms of corporate profits, according to 67 per cent of surveyed investors — the highest proportion in 17 years.
Meanwhile, investors pulled money from UK equities, which saw the biggest one-month drop in allocations since May 2016 as concerns of a no-deal Brexit rose.
After six months of falling allocations to euro zone equities, investors added to the region again.
VIX hit its lowest since January on August 9, surveyed investors showed the lowest conviction on record for buying volatility.
Helen Reid –