LONDON, July 14 (Reuters) - Investors ramped up their cash holdings in July to the highest level since the global financial crisis in 2008 as China’s stock market plunged and the Greek crisis reached boiling point, a closely watched survey showed on Tuesday.
They also took out more protection against stock price falls, cut emerging market equity exposure to a 16-month low, trimmed back global growth forecasts and pushed back expectations of the Federal Reserve’s first interest rate hike.
The monthly Bank of America Merrill Lynch poll of 191 fund managers, who run $510 billion in funds, was taken between July 2 and July 9.
Global investors’ cash holdings rose to 5.5 percent of their portfolios in July, up from 4.9 percent a month earlier. That is the highest since December 2008, three months after the collapse of U.S. investment bank Lehman Brothers that plunged the world into recession, and the second highest since November 2001.
BofA Merrill Lynch says this is a bullish signal for equities. Readings above 4.5 percent are a “buy signal” while readings below 3.5 percent are a “sell signal”.
“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” the bank’s Global Research chief investment strategist, Michael Hartnett, said.
Investors cut their holdings of emerging market stocks to a net 20 percent underweight position, the lowest in 16 months, and reduced euro zone stocks exposure to a net 40 percent overweight position, the lowest in six months.
More investors took out protection against falling stocks over the next three months than at any time since February 2008, the survey showed.
And gold, traditionally a safe-haven asset in times of financial and economic stress, was undervalued for the first time since August 2009, the survey showed.
It was not a clear-cut picture on risk, however. Although the biggest asset allocation reduction was in commodities, the biggest increase was to banking stocks.
And a rise in U.S. equity allocations lifted overall global stock holdings. U.S. exposure rose to a net 7 percent underweight from 10 percent underweight in June, and global holdings rose to 42 percent overweight from 38 percent.
“Overall, equity allocations are unaffected by the higher risk aversion,” BAML said.
Global bond holdings eased back to a net 60 percent underweight from 58 percent underweight in June.
On the macro front, a net 42 percent of those polled expected the global economy to strengthen over the coming year, the lowest in nine months. Chinese growth expectations were the lowest since December 2008, with a net 62 percent of respondents forecasting weaker growth over the next 12 months.
The consensus on the Fed’s first rate hike in almost a decade shifted to December from September in the last survey. (Editing by Louise Ireland)