The Strategist

Investments in risky assets reduced worldwide

10/16/2019 - 09:58

International investors do not believe in the soon conclusion of the trading peace between the United States and China. Therefore, they are increasing share of cash in their portfolios, and adjusting investments in risky assets. High interest for US stocks persists, while investments in European companies, as well as in companies in developing countries, tend to an indicative level.

Portfolio managers interviewed by analysts at Bank of America (BofA) Merrill Lynch are not waiting for a quick resolution of the trade dispute between the US and China. The October survey was attended by 230 portfolio managers managing assets of $ 620 billion. According to the survey, 41% of respondents called the trade war a key risk with unpredictable consequences for the global economy. At the same time, 43% of respondents said that confrontation between countries has become a new norm and will not be resolved in principle.

36% of respondents believe that the resolution will be signed, but only in 2020. Next year is a kind of deadline for the promises made by the American president in the 2016 election race, analysts say. Three years ago, Donald Trump announced that he would make America Great Again. To return to its former greatness, President promised to return the production facilities that immigrated from the United States to China and other countries, as well as to combat theft of intellectual property and the protectionist monetary policy of the PRC authorities. The prospects of his re-election for a second term depend on the success of this campaign. If he reaches an agreement now, then this success will be forgotten by the elections.

In such circumstances, managers behave cautiously and increase the share of cash in portfolios again. According to BofA, the average share of cash increased in October to 5%, which is 0.3 percentage points (pp) higher than September.

At the same time, there is a weak recovery in demand for stocks. The number of managers whose investments in stocks were above the indicative level was only 1% higher than the number of those whose rate was lower. A month earlier, the indicator was at 4%. At the same time, it is decreasing in all key regions. Overweight on shares of developing countries declined over the month by 2 percentage points, to 9%, in Europe - by 1 percentage point, to 1% overweight. A comparable decrease occurred in American companies, but the advantage over them remains the highest among all countries.