Bets on Further U.S Dollar Strength Decline According to Fund Manager Survey
Global Fund Managers remain long the dollar but a recent survey indicates this increasingly crowded trade may be past its peak.
The US dollar’s rise may be reaching its zenith according to a recent survey of the views of global money managers.
January’s Bank of America Merrill Lynch Global Investor Survey has shown a fall in the number of dollar bulls.
Although it is still the most over-crowded trade, the percentage of fund managers still bullish the dollar, fell from over half or 53.0% in December, to 32.0% in January.
The fall is probably as a result of a change in investor's views about how hawkish the Federal Reserve is likely to be in 2016.
The survey showed over 50% of respondents now expect the Fed to make only two rate hikes in 2016, as opposed to 40% previously - and that two hikes became the most popular number rather than the three hikes in the previous month.
This downward revision in rate hike expectations deviates widely from the four hikes implied by Fed member’s own views at the last FOMC, as illustrated in the dot plot diagram at the Federal Reserve.
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Majority See Global Decline in 2016
Data from the survey also showed that the number of managers who expected the global economy to decline over the next 12 months outnumbered for the first time those who expected it to grow, which was only 8.0% - the lowest level for three years.
Nevertheless, only 12% saw a chance of the world falling into a recession in the 12 months.
China slow-down was considered the biggest “Tail risk” according to 43% of respondents, followed by EM risks (22.0%) and geopolitics (14.0%).
Other highlights from the report included a trend into cash and from equities into more defensive bonds:
“investors raise cash (to 5.4% = 3rd highest since 2009), cut growth & profit expectations (EPS expectations turn negative for 1st time since Oct’12), and rotate defensively (selling stocks, resources, industrials, banks & EM, and rotating to healthcare, staples, cash & bonds).”
The most popular trade remained long dollar, followed by short commodity (which increased in January to over 20%), short Emerging Market (EM) equities, long Tech stocks, long U.S high yield, Long Euro Stocks, Short EM FX and long EU periphery debt.
