GLOBAL - Stagflation fears drive institutional investors out of equities and bonds into cash, as fund mangers globally have their most negative stance towards equities in a decade, according to investment bank Merrill Lynch.
The latest Merrill Lynch survey of fund managers also shows the previously positive sentiment towards Eurozone has turned around, while European investors are going long on oils and short on banks.
That said, the net percentage of investors citing credit risk as the number one threat has fallen from 95% three months ago to 81% in June, despite inflation still being the fastest growing concern.
In the report, 27% of the panel of 204 respondents globally - managing a total of $718bn - are said to be underweight in equities in June.
In contrast, just 1% believe equities are undervalued - down from 25% in the March survey - while a net 42% of asset allocators are overweight in cash - up from a net 31% in the May survey.
Global growth and profit expectations are deteriorating while fears of higher inflation, and subsequent higher interest rates, are rising, according to the report.
Karen Olney, chief European equities strategist at Merrill Lynch, commented: "The market is waking up to the idea that global interest rates are too low, in fact they remain below inflation."
Olney thinks negative real rates are hardly an antidote to inflation, and expects a double rate hike from the European Central Bank (ECB) by October, as well as anticipating other central banks to follow.
The Eurozone has moved from most to least favoured over the past 12 months, as a net 29% of investors stated the Eurozone to be the region they would most like to underweight on a 12-month view.
"Asset allocators have already moved aggressively out of Eurozone equities. A record net 22% said they are underweight - the most negative stance taken in the past 10 years," according to the review.
Moreover, a net 62% of respondents have stated they are now overweight in oil and gas (up from a net 29% in April), and 62% are underweight in banks (up from a net 21% in April).
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