BofA Merrill Lynch October Fund Manager Survey finds investors most bearish on global growth since 2007

• When asked how the global economy will develop over the next year, net 38% of respondents expect deceleration, the worst outlook on global growth since Nov. ‘08

• FMS investors think the USD is very overvalued, notably against EM currencies which are seen as never having been more undervalued in survey history

• Looking at corporate earnings, net 35% of respondents indicated they do not expect an improvement of 10% or more in the next year, a significant swing from net 35% expecting improvement from February’s survey

• A net 20% of investors surveyed think global profits will deteriorate over the next 12 months, a 2-year low and major reversal from January’s survey, when a net 39% noted they expected an improvement

Risks

• A trade war (35%) remains the biggest tail risk concern for FMS investors, although conviction fell for the third month in a row as concerns about Quantitative Tightening rise (31%); a China slowdown comes in third (16%)

• “Long FAANG+BAT” (32%) remains the most crowded trade identified by investors for the ninth straight month, followed by “Short US Treasuries” (19%) and “Long S&P 500” (18%)

Asset allocation

• Allocation to global equities holds steady at net 22% overweight, close to July’s recent low of net 19% overweight

• Investor allocation to US equities reverses much of the climb from the past two months, falling 17ppt to net 4% overweight; US loses out to Japan as most favored equity region globally

• Allocation to bonds slips 5ppt to net 50% underweight, but still firmly off the record low of net 69% underweight in February

“Investors are bearish on global growth,” said Michael Hartnett, chief investment strategist, “but not bearish enough to signal anything but a short-term bounce in risk assets.”