Investors sell, get into cash

Investors have cut their heavy equity positions in August and boosted cash and bonds as fears of a liquidity squeeze and a sell-off in stocks made them more averse to risk, a poll showed on Wednesday, 15 August.

Investment bank Merrill Lynch’s August survey of global fund managers, taken between 2-9 August, also showed fund managers saw the stock market sell-off as a buying opportunity and remained confident about robust economic fundamentals.

The poll, which surveyed 181 fund managers managing a total of $599 billion, is one of the most timely snapshots of fund managers’ activity during a sharp fall in risky assets, triggered by concerns about liquidity and deteriorating credit markets stemming from troubled US subprime mortgages.

“People have become more risk averse. What’s surprising is that there doesn’t appear to be a major change in their views on stocks. People still see value in equities relative to bonds and they see it almost as a buying opportunity,” said David Bowers, consultant to Merrill’s poll. “People think this is a credit or financial event but they are not positioned for a spillover to the macro backdrop.”

Forty-nine per cent of respondents were overweight equities in August, down from 69% last month. Fund managers became less bearish on bonds, with 65% underweight this month, down from 72% in July.

The cash balance rose to 4.4% from 3.4% in July, its lowest since the survey began in January 1998.

Fund managers trimmed expectations for corporate profits and core inflation, but more than 90% of them said the global economy was unlikely to experience recession over the next twelve months.

“The survey isn’t as bearish as it was expected to be. It’s not business as usual, but they haven’t thrown in their towels,” Bowers said.

Investors also kept their faith in emerging markets. More than 30% of the managers said global emerging markets offered the most favourable outlook for corporate profits, overtaking the euro zone which has been the top favourite throughout 2007.
The managers saw credit default risk and counterparty risk as top potential threats to financial market stability.

As for currencies, fund managers saw the yen as cheap, while the euro and sterling were seen as expensive. Respondents became slightly less bullish on commodities, with 17% overweight, down from 18% last month.