Investors shun equities, boost cash: BofA Merrill poll

Investors slashed equity holdings in August and boosted cash levels to their highest since March 2009 as concerns about a global economic slowdown and the euro zone debt crisis drove an exodus from riskier assets, a survey showed on Tuesday.

The monthly global fund managers' survey from Bank of America-Merrill Lynch showed a net 2% of respondents were overweight equities this month compared with 35% in July and an all-time peak of 67 points in February. The figure shows the difference between overweight and underweight positions. The survey of 176 participants with assets of USD 551 billion also showed cash allocations doubled to a net 38% overweight from 15%, posting the biggest monthly rise after August 2007. Bond allocations moved to a net 33% underweight from 45%, coming closer to the long-run average of net 34% underweight. The survey was polled between August 5-11, around the time when world stocks posted their biggest weekly loss since November 2008. A net 29% of respondents now think a recession is likely, up from 13% in July. "It's pretty straightforward given what we've seen. We have seen recession fears jump and cash levels surged," said Patrik Schowitz, European equity strategist at BofA Merrill Lynch. "People are already negative and a lot of bad news is priced in. It's a clear buy signal but it's a bit too optimistic to say we will go back to where we were. We might see a rally but we do think it will be capped." Cash balances spiked to 5.2%-- their highest since March 2009 -- from 4.1%, above the BofA's contrarian buy signal threshold of 4.5%. Global equities have on average rallied 5.9% over the next four weeks after rising above this threshold. The reading hit 5.5% in December 2008. A net 48% of respondents said equities were undervalued, the record in the survey's history. Hedge funds reduced their gearing levels. The ratio of their gross assets relative to capital fell to 1.43 from 1.50 last month. Their net exposure to equity markets -- measured as long minus short as a percentage of capital -- rose to 33% from 31%. Emerging markets were the only favoured region, with a net 27% of investors overweight. US equity positions saw the sharpest fall ever, with investors turning a net 1% underweight from a net 23% overweight in July.