Britain is still out of favour

Britain is still out of favour

By Eamon Quinn

Global investors last month continued to pump money into stocks at the expense of bond markets, while the UK remains out of favour because of Brexit, according to the Bank of America Merrill Lynch latest snapshot of investment flows.

The survey appears to confirm heightened concerns over valuations of US bond markets, but will likely also increase worries that after a bull run of almost nine years that US stock markets are overvalued too.

The scope of the BofA survey makes it a particularly closely-watched survey: It canvassed the views of 183 market players who are responsible for managing assets of €430bn around the world.

At 55% overweight, it found that the allocation of the fund managers to equities had jumped to a two-year high, while their allocation to bonds had fallen to a four-year low, at an allocation of net 67% underweight.

Not since August 2014 have managers been overweight equities relative to government bonds, according to the survey. And investors are worrying most about the outlook for bond markets — with a crash in global bond markets, at 36%, top of their list of risks, followed by concerns that the US Federal Reserve or the ECB will take a misstep in their monetary policies and by concerns over “market structure”.

Global investors said they favoured investing in assets in the eurozone, emerging markets, and Japan. But the UK remains “deeply out of consensus”, with assets there the most out of favour with investors since 2001.

Investors were favouring so-called cyclical opportunities — assets that tend to gain in value when world economies are growing. Technology assets — which saw the largest increase in interest for three and a half years, industrials, emerging market, as well as equities, all benefited.

So-called defensive plays such as telecom, bonds, utilities, and the UK were out of play.

“Investors continue to favour equities,” said Michael Hartnett, chief investment strategist at the bank. By the end of March, “we expect peak positioning to combine with peak profits and policy to create a spike in volatility”, he predicted.

In Europe, fund managers also strongly favour equities but are fearful of bonds. Their allocations in equities are the highest since March 2015 but predict they will peak this year.

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