Emerging Markets gain favour as global outlook darkens, BofA -ML says

The share of fund managers forecasting a global economic recession dipped last month, according to the results of one of the most widely-followed surveys of sentiment for the group.

According to Bank of America-Merrill Lynch's Fund Manager Survey for December, only 9% of the managers canvassed saw a downturn in 2019, two percentage points less than in 2018.

But a net 53% expected weaker growth over the next 12 months, the worst outlook since October 2008, just after investment bank Lehman Brothers collapsed, leading to a sharp pick-up in momentum in financial market stress during the Great Financial Crisis.

UK shares in particular were disliked, with investors slashing their allocation by a further 12 percentage points to 39% underweight - the second worst reading on record.

Also moving lower were expectations for inflation, company profits and managers' stock allocation, BofA-ML said.

So too, stock allocations for the US and Europe fell.

In parallel, expectations for consumer prices globally declined by the most since August 2011 and stock allocations hit a two-year low.

Meanwhile, 47% of investors expected corporate profit margins to worsen - a six-year low.

On the flip-side, in December being 'long' FAANG+BAT (Baidu, Alibaba and Tencent) fell out of favour as the 'most crowded' trade, with only 20% of managers now thus positioned.

Instead, investors had flocked to the Greenback (25%) or were 'short' emerging markets.

Emerging market equities also gained favour, with investors' allocation increasing by five percentage points to a net 18% 'overweight' "marking the return as the #1 region of choice amongst FMS investors".

Investors' largest concern? A trade war, BofA-ML said, followed by quantitative tightening (18%) and a slowdown in China (16%).

Investors' average cash balances ticked higher, from 4.7% in the month before to 4.8%.