LONDON (Reuters) – Investor outlooks have deteriorated to their most pessimistic in a decade, Bank of America Merrill Lynch’s December investor survey showed on Tuesday.
A net 53 percent of investors surveyed, who manage $694 billion in assets, said they expect global growth to weaken over the next 12 months, according to the poll, which took place from Dec. 7 to Dec. 13.
The U.S. dollar replaced technology stocks known as FAANGs in the United States – Facebook, Apple, Amazon, Netflix and Google – and China’s BATs – Baidu, Alibaba and Tencent – as the most crowded trade for the first time since January, it found.
Technology stocks, in particular iPhone maker Apple, have led a recent sell-off on Wall Street, which has seen the SP500 .SPX sink almost 13 percent and the Nasdaq .NDX drop 15 percent this year. The Nasdaq is on track for its worst quarter in a decade.
In a sign of a further darkening in mood, investors piled into bonds, often considered a haven in times of geopolitical and economic uncertainty. This month’s survey found the biggest-ever one-month rotation into debt on records going back to 2001.
Bond allocation rose 23 percentage points to a net 35 percent underweight, marking the highest bond allocation since the Brexit vote in June 2016, it showed.
(For a graphic on ‘The FAANGs (YTD % change)’ click tmsnrt.rs/2A3rldF)
“Investors are close to extreme bearishness,” Michael Hartnett, BAML’s chief investment strategist, told clients. “All eyes are on the Fed this week, and a dovish message could equal a bear market bounce.”
Investors favored emerging-market stocks the most, while they continued to cut their exposure to U.S. and euro zone equities by 8 percentage points. That took the euro zone to underweight for the first time in two years.
A net 39 percent of investors were underweight UK shares, the second-largest share on record as the approaching Brexit deadline stoked renewed uncertainty.
The outlook for corporate health weakened, too. Almost half think companies are over-leveraged, the highest level on record. Expectations for corporate profit is the worst in a decade, with a net 47 percent of investors expecting global profits will deteriorate in the next 12 months.
Nearly 60 percent of those polled think corporate margins will weaken in the next year, a six-year low.
A trade war tops the list of biggest tail risks cited by investors for the seventh straight month, followed by quantitative tightening and a slowdown in China, the world’s second-largest economy, it said.
A net 37 percent expect inflation to rise over the next year, down 33 percentage points from the previous poll and a reversal from the recent peak of 82 percent in April.
(For a graphic on ‘Global market asset performance’ click tmsnrt.rs/2A5Nzf0)
Reporting by Josephine Mason; editing by Helen Reid, Larry King