Investor confidence hit lowest level since 2008 financial crisis, says BofAML survey

Investor confidence hit lowest level since the global financial crisis of 2008 due to concerns of trade disputes, monetary policy impotence and low strike prices for policy puts, according to Bank of America Merril Lynch’s June Global Fund Manager survey.

Fund managers’ equity allocation witnessed the second largest drop ever, only bettered by the drop in August 2011. Equity allocation fell 32 percentage points (ppt) in June to 21 percent month-over-month, lowest since March 2009, despite the MSCI All Country World Index being just 7 percent from its all-time high, noted BofAML in its report dated June 18.

“FMS bond allocation soars 12 ppt to 22 percent, the highest allocation since September 2011, as dovish central banks, falling inflation expectations and risk-off sentiment drive interest rates lower,” the investment bank said in the report.

Interest rate expectations have collapsed with 32 percent of investors expecting short-term interest rates to fall over the next 12 months and just 10 percent seeing long-term interest rates to rise.

The US Federal Reserve will announce its monetary policy decision on June 20.

“FMS investors expect Fed to cut if S&P500 falls to 2430 (weighted average) and

Global profit expectations plummeted 40 ppt to 41 percent in June, the second biggest collapse in profit expectations (only behind July 2011) over 23-year FMS profits history, but just above recent January 2019 low of 52 percent, said the survey. FMS investors said the profit expectation will deteriorate in the next 12 months.

Cash level rose to the highest level since August 2011, up 1 ppt to 5.6 percent from 10-year average of 4.6 percent.

“Trade war, inflation and growth concerns caused FMS investors to shift into defensive sectors selling banks, tech and energy to buy staples, utils and pharma in June,” the survey noted.

Around 74 percent of FMS investors are bearish on both the growth and inflation outlook for the global economy over the next 12 months, according to the survey.