Global asset allocators turned the most bearish on equities and commodities since 2009 as Europe’s debt crisis prompted investors to once again raise cash levels, a Bank of America Corp. survey showed.
A net 7 percent of the 286 respondents, who together manage $739 billion, said they were “underweight” stocks this month, compared with 5 percent in September, according to a survey from Bank of America’s Merrill Lynch unit. Investors cut commodity holdings to the same level, from 4 percent overweight last month. It was the first time since February 2009 that respondents were underweight both asset classes, meaning they held less than suggested by benchmark indexes.
The Stoxx Europe 600 Index has lost 19 percent from this year’s peak on Feb. 17 as policy makers struggle to contain the region’s debt crisis that has Greece teetering on the edge of a default. The gauge extended losses this week after China’s economy expanded at the slowest pace in two years.
“The biggest tail risk is still European sovereign debt,” Gary Baker, head of European equity strategy at Merrill Lynch, said in a statement today. We’ve also seen a “deterioration in sentiment towards China,” he said.
Average cash balances were raised to 5 percent from 4.9 percent in October, maintaining Merrill’s contrarian buy signal which was triggered in August when cash rose above 4.5 percent. Even so, a composite indicator of risk and liquidity improved in October, rising to 31 from 29 in September, which was the lowest level since March 2009.
Cash on Sidelines
“Cash is still sitting on the sidelines and that is an indication where risk appetite is,” Baker said. “It all depends on the news flow.”
European leaders meet this weekend at a summit in Brussels amid speculation they may announce plans to help Greece avoid a default, bolster banks and curb contagion in the region. A person with direct knowledge of the talks told Bloomberg News that France and Germany are still working on how to increase the effective power of the euro-area rescue fund.
Emerging markets remained the region of choice amongst respondents, even as investors slashed their holdings in the area to a net 9 percent overweight. That compared with 30 percent in September.
The U.S. was the only other region where investors remained overweight, with a net 6 percent holding more than benchmarks, compared with 7 percent last month. Stocks in the U.K. and the rest of Europe remained out of favor, though respondents scaled back their bearish positions.
A net 29 percent were underweight European stocks, down from 38 percent in September, while 12 percent were underweight in the U.K., the least bearish in seven months.
The survey took place from Oct. 7 to Oct. 13.