The latest Bank of America fund manager’s survey is out and this is the headline-grabbing chart. It’s a survey of global investors asking them if they plan to cut their weighing of US equities and it shows that 65% want to be underweight.
Now that may turn out to be a contra indicator as it’s been US equities that have driven global markets higher for the past five years, largely due to tech companies. But those companies are richly valued and are vulnerable to tariffs and potential retaliation from trade partners. Global equities are also much cheaper and that provides some downside protection in a slowing global economy.
More importantly, the survey may highlight a newfound determination to leave or lighten up on USD assets.
Deutsche Bank today highlights the vulnerability:
- Foreigners own
$7 trillion of American fixed income and $18 trillion of American equities - The value of equity ownership has risen 6x since 2010
- European portfolio holdings of US equities have risen from 5% to 20% since 2010
- They note that unhedged FX exporse to US assets is very high
The more benign interpretation of our analysis is that
foreigners have merely passively tracked rising aggregate valuations of US
equities and issuance of US bonds. The more worrying interpretation is that
this has left foreigners – especially Europeans – with a huge overweight in
their portfolios relative to history, especially in US equity markets which
tend to be currency unhedged.
This article was written by Adam Button at www.forexlive.com.