The survey of 220 panelists found that only 32% expect the global economy to strengthen over the next 12 months, a 20% fall from September and the lowest in ten years.
BAML said monetary policy underlies the shift in sentiment, with only a net 18% of fund managers now viewing policy as ‘too stimulative’, down by 14% since last month.
The response to these concerns has been to reduce risk, with cash balances rising to 4.9% while investment horizons have shortened and equity overweights have fallen a net 13% month-on-month.
Retreating to the benchmark
Respondents also seem to be losing their appetite for emerging markets and European equities, with current positioning and intentions for the next 12 months turning to negative or neutral.
Some of this money has been shifted into the U.S. market and Japan, which have seen an improvement in sentiment, according to the survey.
“Cash balances are high, but investors are retreating to benchmark positions rather than staging an exodus from markets,” said Michael Hartnett, chief investment strategist at BAML Global Research. “With the European Central Bank ‘hope trade’ gone, performance in European equities is reverting to fundamentals. As our view remains downbeat, we continue to favor defensive dividend yield stocks and expect any rallies in cyclical stocks to be short lived,” added Manish Kabra, European equity and quantitative strategist,” he added.