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Investors taking ‘risk-off’ stance amid interest rate and Grexit concerns, says BoAML survey

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Global investors have moved out of equities into cash ahead of an expected US Fed rate hike, according to June’s BofA Merrill Lynch Fund Manager Survey (FMS). Investors have also shown concern about a Greek default and a possible bubble in Chinese equities

Cash levels have risen to 4.9 per cent of portfolios, up from 4.5 per cent in May; the proportion of investors overweight equities has fallen to net 38 per cent from 47 per cent.

Expectations of higher rates are the highest since May 2011, with a net 80 per cent of the survey panel forecasting a rise in short-term rates.

The majority of the FMS panel also sees a negative resolution of Greece talks – 15 per cent predict Grexit, and 42 per cent predict default without exit.

Seven out of 10 investors meanwhile say China’s equity market is in a “bubble.” A net 50 per cent see China’s economy weakening.

The proportion of investors expecting to underweight global emerging markets surges to a net 21 per cent from net 6 per cent in May.

Corporate operating margins will fall in the coming 12 months, according to a net 17 per cent of investors – up from net 5 per cent in May.

The US dollar is the most crowded trade as Fed tightening looms; 72 per cent predict the euro will weaken vs. the dollar in coming year.

“Higher cash levels show how caution is in the air, with 65 trading days until we expect the Fed to tighten,” says Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Investors remain bullish on European equities but are increasingly concerned about Greece and higher yields,” said James Barty, head of European equity strategy.

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