Jitters relating to the U.K.’s vote to quit the European Union roiled global markets and sent cash levels on fund managers’ balance sheets close to a 15-year high, data out Tuesday show.
According to Bank of America Merrill Lynch’s monthly fund manager survey, investors held 5.8% of their portfolios in cash when the July survey was conducted. That marks a slim increase on the June level and represents the highest proportion since November 2001.
Holding cash is a relatively low-risk strategy. Although cash offers no real interest, it can be deployed quickly, saving fund managers from having to sell before they can buy—a benefit when markets are undulating suddenly and sharply as they have been doing over the last year.
Levels on investor balance sheets have been creeping up for months, according to the bank’s data, but July’s survey nonetheless signals somewhat of a sea-change in sentiment: it’s the first time in three years that investors’ average allocation to equities has dropped to underweight. It’s also the first time in three years that allocations to European equities have turned to underweight. The proportion of investors looking to short U.K. equities, meanwhile, hit its highest level since December 2009, while the number of those buying protection against sharp declines in stock markets surged to a record high.
“Europe finally belongs to the bears,” said Manish Kabra, a European equity quantitative strategist at Bank of America Merrill Lynch.
Asked what they perceive to be the biggest “tail-risk” for global markets at the moment, the most popular response among the 195 panelists–who were questioned between July 8 and July 14–was geopolitical risk.
The survey is the latest indicator that investors are becoming more risk-averse in the light of uncertainty relating to factors such as the prospect of Britain splitting from the EU.
Standard & Poor’s on Tuesday forecast that the Brexit vote, and related “political volatility, prolonged exit negotiations, weaker economic growth, and diminished investment intentions” would lead to “more difficult conditions for corporates” across the whole of Europe over the coming months.
Also Tuesday, PwC published its economic outlook for the U.K., which predicted the country will “narrowly” avoid a recession over the coming year but growth will be “significantly slower” in the short term following the referendum.
On Monday, a quarterly confidence survey by Deloitte showed that business sentiment had taken an unprecedented hit in the wake of the vote, with executives turning distinctly more pessimistic about hiring and capital spending than ever before.
That survey, which included responses from 132 chief financial officers of FTSE 350 companies in the U.K. and other large private firms, found that uncertainty had spiked while optimism about the future had crumbled to a level even lower than during the collapse of Lehman Brothers in 2008.
