By Ingrid Melander
LONDON, June 12 Investors raised their cash
holdings to the highest level in more than three years in June
on concerns over the euro zone and global growth, and they also
slashed their equity allocations, a closely watched fund
managers' survey showed on Tuesday.
Investors, who cut their European equity allocations to the
lowest level since last September and commodities to the lowest
since early 2009, widely expect central banks to step in to stem
the crisis, the monthly survey by Bank of America/Merrill Lynch
"It's definitely a risk-off month and closing in on a risk
of capitulation," said Gary Baker, head of European equity
strategy at Bank of America Merrill Lynch.
"Why are we not at the capitulation stage yet? I'd put it
down to the expectation of policy response," Baker said. "It's
not just hope but a firm expectation that there will be a policy
response from the central banks."
Average cash levels stood at their highest since the start
of the euro zone debt crisis at 5.3 percent of portfolios
compared to 4.7 percent in May, and the gap between euro zone
and U.S. equity allocations jumped to its widest on record.
"Cash has been steadily accumulating (in recent months) but
to see it spike to this level illustrates the difficulties
investors are having," Baker added.
The overwhelmingly risk-off mood pushed investors to swing
to net 4 percent underweight on global equities, versus a net 16
percent overweight in May and a net 28 percent in April. That
was despite the fact that almost half see equities undervalued.
In Europe, fund managers polled said euro zone equities had
never been cheaper and were in fact cheaper than any other
region in the past.
The global survey of 260 investors managing $689 billion in
assets found that nearly three in four expect the European
Central Bank to proceed with another liquidity operation in the
next four months.
That is up from less than one in two in May, while 44
percent expect another quantitative easing from the U.S. Federal
Reserve in the third quarter.
"A lot of investors are sitting on their hands waiting for a
policy response, and until that is evident investors are content
to sit on the sidelines waiting for that event," Baker said.
The survey, conducted May 31-June 7, before the euro zone
agreed to bail out Spanish banks, showed that two-thirds of fund
managers see the EU sovereign debt crisis as the biggest tail
risk and even see a risk of a negative surprise from Germany.
The poll showed a sharp decline in growth expectations, with
a net 11 percent of the global panel forecasting that the global
economy will deteriorate in the next 12 months, while last month
a net 15 percent expected the economy to strengthen.
Allocations to bonds rose, with a net 23 percent of fund
managers underweight fixed income compared to 33 percent in May.
While most investors are convinced of a soft landing for the
Chinese economy, the flight to cash saw them scale back their
long-standing overweight on emerging equities to just 17
percent, half of last month's level, the poll showed.
(Additional reporting by Sujata Rao)
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Keywords: INVESTMENT BOFAML/SURVEY
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