MNI: BOA Merrill Fund Survey: Investors Up Cash Assets In Dec

--Increased Cash Holdings May Pave Way For More Risk Taking in Q1'18

--Record High Say Equities Overvalued; Bonds Mkts Deemed Overvalued 

By Vicki Schmelzer

     NEW YORK (MNI) - Global investors upped their average cash balance to 4.7%

in December from 4.4% in November, putting cash balances well above the 10-year

average of 4.5%, according to Bank of America Merrill Lynch's monthly fund

managers survey, released Tuesday. 

     "Despite surging credit and equity markets, investors increased their cash

balance back into buy territory," said Michael Hartnett, chief investment

strategist. "This paves the way for more risk asset upside in the beginning of

2018."

     On asset allocation, a net 48% of fund managers polled were overweight

global equities in December, compared to a net 49% overweigh in November, which

was the highest since April 2015. This compared to a net 45% overweight in

October and a net 34% overweight in September.

     A net 59% of managers were underweight bonds in December, versus a net 56%

underweight in November and a net 60% underweight in October, which was the

lowest allocation in seven months.

     "A record high three-month moving average of a net 45%" said world equities

were overvalued and a net 83% of fund managers said bond markets are overvalued,

very close to the net 85%, a record high, seen in October. 

     "Two thirds of investors expect U.S. tax reform to result in higher bond

yields and higher stocks in 2018, while only 3% think it will lead to lower

yields and stocks," the survey said.  

     Most regional equity markets saw paring and squaring of positions.

     A net 15% of portfolio managers polled in December were underweight U.S.

stocks versus a net 16% in November, a net 21% underweight in October and a net

28% underweight in September, which was the largest since November 2007. 

     In contrast, a net 45% of managers were overweight eurozone stocks in

December, versus a net 47% in November and a net 58% overweight in October,

which was the highest in five months.  

     Allocation to emerging market equities fell to a net 34% overweight in

December from a net 43% overweight in November. This compared to a net 41%

overweight in October.

     In December, a net 24% of fund managers were overweight Japanese stocks,

down from the two-year high of a net 32% seen in November, but a bit above the

net 23% seen in October. 

     A net 34% of those polled were underweight UK equities this month, versus a

net 37% in November and a net 31% in October.   

     The top tail risks in December were "Fed/ECB policy mistake," feared by a

net 23%, a "crash in global bonds," a net 15% and a "Chinese debt crisis," a net

14%.

     In November, the top "tail risks" were "Fed/ECB policy mistake," with a net

27% of portfolio mangers fearing this at the time, followed by a net 22%

concerned about a "crash in global bond markets," and a net 13% who feared that

"market structure" causes a "flash crash."

     In December, the "most crowded trades" were "Long Bitcoin" (net 32% noted),

"Long FAANG+BAT" (net 29%) and "Short Volatility" (net 14%)

     This compared to the "most crowded trades" in November: "Long Nasdaq" (a

net 34% noted), "Short Volatility" (a net 26%) and "Long US/EU/EM NY Corp Bonds"

(a net 18%). 

     Overall, "Goldilocks remains the consensus view for the global economy,

with 54% of investors surveyed expecting above-trend growth and below-trend

inflation in the next 12 months, just 2ppt lower than last month's record high,"

BOA Merrill Lynch said. 

     An overall total of 203 panelists, with $558 billion in assets under

management, participated in the BOA Merrill Lynch survey, taken Dec. 8 to 14. 

     "172 participants with $480 AUM responded to the Global FMS questions and

89 participants with $203 AUM responded to the Regional FMS questions." the

survey said.

--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com

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