Global fund managers in June are at their most downbeat on the prospects for the global economy since December 2011, taking an emphatic low-risk asset allocation stance, according to a monthly survey by Merrill Lynch.

Global fund managers surveyed in early June were at their most downbeat on the prospects for the global economy since December last year, taking an emphatic low-risk asset allocation stance, according to a monthly survey by Bank of America Merrill Lynch, published today.

A net 11 per cent of fund managers surveyed said the global economy will deteriorate in the coming 12 months – the weakest reading since the end of last year. By contrast, in May, a net 15 per cent believed the economy would improve.. The negative swing of 26 percentage points is the biggest since July-August 2011, hit by fears about sovereign debt defaults in the eurozone.

The outlook for corporate profits also deteriorated: a net 19 per cent of fund maangers said profits will contract in the coming 12 months. Last month, a net 1 per cent predicted improving corporate profits.

A total of 260 panelists with $689 billion of assets under management participated in the survey from 31 May to 7 June, Merrill Lynch said.

Risk avoidance

Average cash balances are at their highest level since the depth of the credit crisis in January 2009 at 5.3 per cent of portfolios, up from 4.7 per cent in May. Merrill’s Risk & Liquidity Composite Indicator fell to 30 points, versus an average of 40.

Asset allocators have moved to a net underweight position in global equities and increased bond allocations.

Support for policy stimulus grew, with a majority of the panel saying that global monetary policy was “too restrictive.” A net 6 per cent take that view, the highest since December 2008. A net 15 per cent said policy was “too stimulative” in May. The proportion of global investors saying global fiscal policy is “too restrictive” has continued to rise to a net 28 per cent from a net 23 per cent in May.

A net 48 per cent of the global panel believes global equities were undervalued, matching the lowest level since the survey began. The reading is up from a net 35 per cent in May and a net 22 per cent in April. At the same time, a net 83 per cent of the panel says that bonds were overvalued – also an all-time high and up from a net 74 per cent a month ago.

Asset allocators moved out of global equities with a net 4 per cent underweight the asset class, compared with a net 16 per cent taking an overweight stance in May.

Concerns resurfaced about China (the survey was carried out before the recent monetary loosening by the Chinese central bank).  The panel was equally split about whether China’s economy will get stronger or weaker in the year ahead; last month, a net 10 per cent predicted it would strengthen.

Some 16 per cent of respondents say China’s economy faces a “hard landing” – up from 9 per cent in May taking that view.