Global investors holding on to cash despite stock rally
London
AMID a rally that's added back US$2.8 trillion in equity value globally, investors burned by Greece and China remain reluctant to loosen purse strings.
The MSCI All-Country World Index has regained two-thirds of its losses from a record in May through a low last week, though the biggest price swings since October are scaring money managers away. Funds worldwide are holding on to the most cash since the financial crisis of 2008, according to a Bank of America Corp survey.
The level got so high that it triggered a "contrarian buy signal", the firm said in a note dated July 14. Investors such as Union Investment's Carsten Hilck remain cautious.
"I'd still hold on to a bit of cash as a buffer - just in case," said Mr Hilck, whose firm manages about 252 billion euros (S$374.8 billion) in Frankfurt. "I don't think we've quite seen the end of these volatile times yet."
The MSCI index of global stocks has moved 0.7 per cent on average each day this month, compared with gains or drops of 0.5 per cent in the first half of the year. It slumped 6.5 per cent from its record in May through a low on July 8, to then rebound 4.4 per cent.
Among the concerns: Greece faces hurdles to winning financial aid, the Federal Reserve is on track to raise rates this year, and hedge-fund managers Paul Singer, Bill Ackman and Jeffrey Gundlach are among those warning of global consequences from China's equity rout. The International Monetary Fund trimmed its outlook on worldwide economic expansion this month.
"Global growth is not accelerating, China is definitely not out of the woods, we have the Fed rate hiking cycle coming up, and the Grexit issue was only kicked a little further down the road," said Ralf Zimmermann, an equity strategist at Bankhaus Lampe KG in Dusseldorf. "Investors should be careful after the strong rebound because the risks are more to the downside."
Not everyone is afraid of stock swings, and the declines can offer bargains for those willing to take the risk. Harris Associates' David Herro, one of the biggest US owners of European shares, said last week he's buying up stock in companies such as BMW AG and BNP Paribas SA at attractive prices.
"Volatility is here to stay, and investors should get used to it," Stephanie Flanders, the London-based chief market strategist at JPMorgan Asset Management, said at a presentation on Wednesday. "The ride is only going to get bumpier. But some volatility is healthier than none at all."
Fund managers increased cash levels to 5.5 per cent from 4.9 per cent in June, according to the Bank of America survey conducted between July 2 and July 9. They cut the proportion of funds in European equities, emerging markets and Japan this month.
Lampe Asset Management started to raise cash this week, selling European stocks after buying them cheaply a few weeks ago, according to Michael Woischneck, an equity manager who helps oversee 6.2 billion euros at the firm. The Euro Stoxx 50 Index trades at 15.8 times estimated profits of its members, up from a low of 14.1 on July 7.
"The rebound we've seen has been quite impressive," Mr Woischneck said from Dusseldorf. "Only a very strong earnings season or a surprise from a central bank can move markets much higher from here." Bloomberg
