Fund managers are worried about a trade war with China.
Net 24% of investors in September said they expected global growth to slow in the next year, up from net 7% in August and the worst outlook on the global economy since December 2011, Bank of America Merrill Lynch reported Tuesday.
Respondents in Merrill's latest global fund manager survey increased their average cash balance to an 18-month high of 5.1% in September, up from 5% the previous month.
The fund manager cash rule holds that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities; when the cash balance falls below 3.5%, a contrarian sell signal is generated.
Asked about the current decoupling in the global economy, 48% of survey participants thought it would end because they saw U.S. growth decelerating, up 16 percentage points from the August survey.
Twenty-four percent said they expected decoupling to continue, and 22% thought Asia and Europe would recouple via accelerating growth, down six points from last month.
"Investors are holding on to more cash, telling us they are bearish growth and bullish U.S. decoupling," Merrill's chief investment strategist Michael Hartnett said in a statement. "Fund managers are signaling that they are starting to price in a hawkish Fed."
The survey was conducted Sept. 7–13 among 244 panelists with total assets under management of $742 billion.
The survey found that allocation to U.S. equities climbed two points to net 21% overweight, the biggest overweight since January 2015. The U.S. is the most-favored equity region globally for the second month in a row as investors buy growth over value both regionally and sectorally, according to Merrill.
When asked about their regional expectations for corporate profits, net 69% of fund managers proclaimed the U.S. to be the most favorable region, a record 17-year high, Merrill said.
Allocation to global equities slid 11 points in September to net 22% overweight, near the 18-month low recorded in the July survey. Investors cut their allocation to eurozone equities by six points to net 11% overweight, an 18-month low.
