Investors' cash holdings highest since Lehman: BoA Merrill poll

[LONDON] 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 US$510 billion in funds, was taken between July 2 and July 9.

Global investors' cash holdings rose to 5.5 per cent of their portfolios in July, up from 4.9 per cent a month earlier. That is the highest since December 2008, three months after the collapse of US 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 per cent are a "buy signal" while readings below 3.5 per cent 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 per cent underweight position, the lowest in 16 months, and reduced eurozone stocks exposure to a net 40 per cent 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 US equity allocations lifted overall global stock holdings. US exposure rose to a net 7 per cent underweight from 10 per cent underweight in June, and global holdings rose to 42 per cent overweight from 38 per cent. "Overall, equity allocations are unaffected by the higher risk aversion," BAML said.

Global bond holdings eased back to a net 60 per cent underweight from 58 per cent underweight in June.

On the macro front, a net 42 per cent 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 per cent 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.

REUTERS