US growth and the risk of recession has replaced the China slowdown as biggest investor fear

Billy Bambrough
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Janet Yellen Delivers Semi-Annual Monetary Policy Report To Congress
Fed chair Janet Yellen recently faced questions from Congress over the US central bank's position on the state of the economy (Source: Getty)

Fear over the US economy and risk of a recession has topped the deceleration of China’s economy as the biggest risk for investors, according to the latest Bank of America Merrill Lynch Fund Manager Survey.

Global fund managers’ growth and profit expectations are both negative for the first time since July 2012.

The survey also showed that investors are now sitting on bigger cash piles than at any time since November 2001, up 5.6 per cent since January and largely thought to be down to the wild market swings recorded since the beginning of 2016.

The market remains unconvinced the US Federal Reserve is going to hit its target of four more interest rate hikes this year, with nine in 10 fund managers expecting no more than two in the next 12 months.

That is up from 40 per cent of respondents since December last year however.

Read more: Greece falls back into recession despite GDP beating expectations

Net overweight positions in equities have fallen sharply to a net five per cent from January’s 21 per cent, while bullishness is growing on bonds.

Although China and emerging market slowdown has lost it’s top spot to US growth fears, it remains one of the biggest concerns for investors.

Expectations for Chinese economic performance are at their weakest levels since 2008.

“Investors have ‘reset’ expectations for macro and markets lower and see default/recession as a risk rather than a reality,” said Michael Hartnett, chief investment strategist.

Perhaps unsurprisingly given the currently market sentiment, long US dollar remains the most crowded trade, followed by shorting oil and shorting emerging markets.

Europe has held onto the title of most preferred region globally for investment, though a net 42 per cent of EU fund managers are now overweight cash.

The survey was carried out between 5 and 11 February.

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