Global investors remain overwhelmingly bullish on US and Chinese tech shares, while short positions on emerging equities are growing increasingly popular, Bank of America Merrill Lynch’s latest monthly institutional investor survey showed on Tuesday.
The monthly institutional investor survey, which was conducted between 3 and 9 August among 243 investors with a total $735 billion under management, revealed that as stocks slumped around the globe, investors flocked to the US, which has become the world’s safe haven: allocations to US stocks jumped 10% to a net 19% overweight, “the biggest overweight since January 2015 and the top equity region for the first time in 5 years.”
That makes the US the most popular equity region for the first time in five years, Chief Investment Strategist Michael Hartnett said and added that “With investors telling us they are long the U.S., the Fed and cash, our view remains: peak profits, policy and returns.”
As investors flooded into the US, they fled from what they said was the “biggest tail risk” for the third month in a row, and 5 of the past 6: trade war…
… with Quantitative Tightening and China Slowdown in distant 2nd and 3rd position.
Tech has kept its crown, even though results-driven declines by Facebook and Twitter last month triggered anxiety over the mega-cap stocks responsible for the lion’s share of stock market gains in the US and China.
Investors picked “Long FAANG and BAT” as the “most crowded” trade for the seventh straight month, BAML’s August survey found, referring to US tech giants Facebook, Amazon, Apple, Netflix and Google, and China’s Baidu, Alibaba and Tencent.
Going short emerging-market equities was the second most popular trade, just before Turkey’s lira plunged 16 percent against the dollar on Friday.
Investors had a small underweight on EM equities, but BAML said prior EM crisis lows saw investors’ underweight at -27 percent, versus -1 percent today – suggesting investors could slash allocations a lot further from here.
According to Hartnett, “August rotation shows survey participants are buying banks and continue to flock to perceived safe havens like US equities and cash; they are selling commodity sectors and defensive sectors/regions like materials, energy and UK equities.”
And speaking of the UK, amid growing concerns of a No Brexit deal, allocation to UK equities saw the biggest one-month drop since May ’16, down 10ppt to net 28% underweight.
Looking ahead, Hartnett said that “rising corporate leverage concerns say bonds should outperform stocks, while a weaker profit outlook suggests defensives could outperform cyclicals.”
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