Investors Hoard Largest Cash Pile Since Credit Crisis

‘Risk-off’ in the extreme as investors take flight from global markets.

(June 12, 2012)  —  Investors are holding the largest allocation of cash in their portfolios since January 2009 as turmoil in financial markets continues to push risk further off the table, a monthly survey has shown.

Average cash balances are up from 4.7% of portfolios to a 5.3% allocation, according to investors responding to the monthly Bank of America-Merrill Lynch Fund Manager Survey.

Asset allocators have also moved into an underweight position in global equities, the survey showed, and increased bond allocations.

Gary Baker, Head of European Equities Strategy at BofA Merrill Lynch Global Research, said: “Investors have taken extreme ‘risk off’ positions and equities are oversold, but we have yet to see full capitulation. Low allocations in Europe are in line with perceptions of growing risk levels in the Eurozone.”

This move away from ‘risk’ assets comes despite investors believing the asset class is undervalued. A net 48% of respondents said they believed equities to be undervalued – matching the largest number since the survey began – whereas the largest number in the survey’s history believes bonds are overvalued. Europe is the most undervalued region, according to respondents, with an all-time high number saying the continent’s equities looked cheap.

Asset allocators have grown keener on the United States, with global investors moving more into the country’s equities. Domestic investors have taken a different view, however, with over a third expecting their economy to deteriorate in the next 12 months.

Analysts at Societe Generale said spending in the US had begun to slow: “We expect reduced auto-dealer revenues, a price-induced drop in gasoline service station receipts and a slowdown in ‘control’ purchases to trigger the largest pullback in retail sales in two years. While nominal outlays on goods and services likely contracted for the first time in 11 months, an even-larger reduction in consumer prices during the reference period probably limited the damage to real spending growth.”

The Bank of America-Merrill Lynch survey interviewed 260 panellists responsible for $689 billion.

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