Sceptical investors favour cash over equities

INVESTORS with $515 billion (R7.2 trillion) surveyed by Bank of America (BofA) Merrill Lynch are not convinced by the new-year equity rally and prefer cash to stocks.

Global equity allocations in February fell to the lowest level since September 2016, according to the BofA, even as the MSCI All Country World Index is up almost 8 percent in 2019. That indicates a deep lack of conviction in the sustainability of the rebound among traders.

The share of investors who believe the Standard & Poor’s 500 Index has peaked at 2 931 jumped to 34 percent this month from only 11 percent in September.

Money managers moved into cash instead, taking the net allocation to 44 percent, the highest overweight since the 2009 financial crisis, according to the BofA. Still, the strategists believe that investor hesitancy is going to be favourable for markets this quarter, and the BofA’s cash balance indicator is flashing a contrarian “buy” signal, the note said.

The “February fund manager survey shows a big rotation from equities into cash,” BofA strategists led by Michael Hartnett said in a note. It “does not show an improvement in investor sentiment; we say bearish investor positioning remains first-quarter positive for asset prices”.

Allocation to US stocks fell to the lowest in nine months, to a 3 percent underweight, with the region being the second-least-favoured among the money managers, the note said. In contrast, eurozone equities saw a jump in allocation to a 5 percent overweight, ending an 18-month streak of investment cuts. Exposure to emerging-market stocks kept rising to a 37 percent overweight.

The survey period spanned the week through February 7 and included 173 participants with $515bn of assets under management.