Global investors are trying to take less risk as geopolitical instability grows and appetite for emerging market equities falls, according to the Bank of America Merrill Lynch Fund Manager Survey for March.
BofA Merrill Lynch Research and market research company TNS produced the survey in mid-March, polling 241 managers with $636 billion of AuM. The survey found that with the situation in Ukraine occurring, 81% of investors said they see geopolitical risk posing a threat to financial markets stability, which is more than four times the percentage who said so a month ago. And 27% of investors say that a geopolitical crisis is the biggest tail risk, which is up from 12% in February.
Plus, the proportion of global asset allocators underweight emerging market equities has hit a record of net 31%, up 2% from last month. However, there is some reason for optimism, as a record net 49% of those surveyed believe that emerging markets is the most undervalued region, compared with a net 36% in January. Also, the proportion saying that emerging markets is the region they would most like to underweight in the coming year has fallen 3% since last month to a net 21%.
In terms of corporate profit growth, investors are less optimistic but still positive. A net 40% of global investors believe that global profits will improve in the next 12 months, down from a net 45% in February.
As a result of all these beliefs, the proportion of investors taking lower than average risk in their portfolio has increased to a net 14% from a net 2% in February. With an appetite for lower risk, a net 16% of global asset allocators said that they are overweight cash, up from a net 12% last month, and average cash balances sit at 4.8% of portfolios. The proportion of allocators overweight equities has dropped 9% since last month to a net 36%, and demand for protection against sharp falls in equity markets has increased to its highest level in 22 months.
Hedge fund managers have also been attempting to de-risk through reduced leverage and reduced exposure to equities. Their weighted average ratio of gross assets to capital has fallen to 1.34 times from 1.49 times, the lowest in 20 months, and 31% of hedge funds have a leverage ratio of less than one time, compared with 19% in January. Furthermore, weighted net exposure to equities has fallen to 29%, down from 32% in February and 38% in January, marking the lowest exposure since June 2012.
Global Investors Have Less Risk Appetite, Finds BofA Merrill Lynch Survey
Global investors are trying to take less risk as geopolitical instability grows and appetite for emerging market equities falls, according to the Bank of America Merrill Lynch Fund Manager Survey for March.