The latest monthly survey released by Bank of America Merrill Lynch on Tuesday showed that global investors'share allocation declined by 6 percentage points in May, and more than a third of fund managers have taken measures to guard against the risk of a sharp fall in the stock market in the coming months.
Bank of America Merrill Lynch said that the proportion of investors preparing for a fall in the stock market was the highest in the survey's history, noting that 37% of participants saw trade wars as a major risk, followed by a slowdown in China's economy, at 16%.
The survey was conducted from May 3 to 9, just as the Sino-US trade negotiations became intense and nearly $687 billion of assets were managed by the fund. Recent developments seem to confirm their concerns that the proportion of funds that consider trade wars as the greatest risk has increased by 17 percentage points over last month.
Last Friday, US President Trump's move to raise tariffs on Chinese imports to the United States by $200 billion came into effect.
China offered tit-for-tat tariffs on Monday as global stock markets fell, the biggest one-day drop in the year.
"(Investors) have good hedging, but are not ready for the collapse of trade negotiations," Michael Hartnett, chief investment strategist, told clients. "Investors see little reason to buy in May unless credit, consumption and China have an unexpected advantage."
The survey found that the proportion of net overallocation of stocks dropped to only 11% and that of bonds with a net 34% underallocation was the highest in seven years. Emerging markets are the most popular stock category, with a net 34% overmatch; the least popular is the UK, with a net 28% undermatch.
U.S. technology stocks replaced short European stocks as the most crowded trading, for the first time since November 2018. Eurozone equity ratios jumped 9 percentage points to 9 per cent over-allocation, hitting a seven-year low in January.
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