Global: Investors Shift from Stocks to Cash Amid Global Growth Concerns

In August, investors significantly reduced their stock allocations and increased their cash holdings, responding to a dip in global growth expectations to their lowest in eight months, according to a Bank of America (BofA) survey of fund managers published Tuesday.

The survey revealed that 31% of respondents reported being overweight in stocks for August, a sharp decline from 51% in July. Simultaneously, the average cash allocation among fund managers rose to 4.3% of assets under management, up from 4.1% the previous month.

BofA attributed this shift to disappointing U.S. payroll data for July and the market volatility following a rebound in the Japanese yen. The S&P 500 has declined by 3.6% this month, including a 2.7% drop on the day of the payrolls report and an additional 2% decrease the following session. This decline was partly driven by a significant drop in Japan’s Nikkei index, which fell the most in a single day since 1987. Market analysts have also linked the sell-off to the yen’s rebound and the unwinding of carry trades that had previously bolstered investor positions.

Despite recent volatility, global equities have shown signs of recovery in recent sessions.

The survey, which included responses from 189 participants managing $508 billion in assets, found that a net 47% of respondents anticipate a weaker global economy over the next year, a decline of 20 percentage points from July. However, 76% of those surveyed still foresee a “soft landing” for the global economy, indicating a gradual slowdown rather than a severe downturn or no slowdown at all.

This optimism is largely driven by expectations of lower interest rates, with 93% of respondents anticipating a reduction in short-term rates within the next year, the highest proportion in the past 24 years. Additionally, 60% of respondents predict four or more rate cuts by the U.S. Federal Reserve over the next 12 months.

The survey also highlighted a significant reduction in allocations to Japanese equities, marking the largest one-month decline since April 2016. Investors shifted from a net 7% overweight position in July to a net 9% underweight position in August, the first net underweight in Japanese equities since July 2023.