The Strategist

Portfolio managers are afraid of a possible trade war

04/18/2018 - 15:36

Managers of the largest investment funds are concerned about trade confrontations between the US and China. And they are reducing investments in shares of companies from developed countries while simultaneously increasing the share of cash in their portfolios. At the same time, investors are willing to build up their investment in developing countries.

International investors have sharply increased their cash holdings in portfolios, according to the April survey of portfolio managers conducted by Bank of America Merrill Lynch. Representatives of 216 funds with $ 646 billion in total assets under management took part in the survey. Thus, the paper suggests that the average share of cash increased from 4.6% in March to 5% in April, returning to the maximum set in June last year. 

Portfolio managers have increased the share of cash in portfolios due to the trade confrontation between the US and China. According to the survey, 38% of portfolio managers called this factor the most significant risk with unpredictable consequences for the economy. Fears of investors intensified after China and the US exchanged threats to introduce protective duties on imports in the beginning of April. Investors fear that the growth of corporate profits will not deliver on the promises. At that, the threat of a trade war between the US and the PRC can only worsen prospects for profit growth.

The survey results show that investors were cautious with investing in shares. The number of managers who increased their investments in these assets was only 29% higher than the number of those who reduced. A month earlier, there was 48% more buyers. Among the most affected were the American and European stock markets. According to the paper, the number of managers whose investments in US companies fell below the indicative level exceeded by 10% the number of those who had this share higher. At the same time, demand for shares of European companies fell to a minimum since March 2017. The results of the survey are confirmed by the Emerging Portfolio Funds Research (EPFR) data, according to which investors withdrew $ 41 billion from US stocks and $ 11 billion from European stocks over the past four weeks.

Despite the general cautious attitude to risky assets, investors look with interest at the assets of developing countries. The number of managers, whose investments in emerging market companies rose above the indicative level, surpassed by 47% the number of those who had this share lower. This is the maximum value of the indicator for the last seven months. The EPFR data also notes the high popularity of emerging markets - the funds of developing countries attracted $ 8 billion for the last four months.