Bank of America Merrill Lynch survey predicts fewer US rate rises, less growth, weaker yuan:

In its 2016 Global Outlook, the US bank said Australia’s economy would grow from 2.5 per cent to 2.8 per cent as the commodities bust slows and the rest of the economy picks up. Photo: Chris RatcliffeGlobal fund managers are extremely cautious on prospects for the global economy and have allocated well over a third of investors assets into cash, according to a survey done by Bank of America Merrill Lynch.

However, investors were “not yet Max Bearish” with only 12 per cent forecasting a global recession over the next 12 months, the survey found.

January’s Global Fund Manager Survey polled 211 fund managers, who were asked dozens of questions about the global economy.

In a sign of increasing wariness regarding the global economy, fund managers’ allocation to cash jumped to the highest in 43 months – with 38 per cent overweight on cash compared to just 20 per cent in December.

In other findings, the survey found that a majority of investors were expecting either zero, one or two interest rate hikes from the US Federal Reserve. Less than a third expected three rate rises and about one in ten expected the four rate rises that the Federal Reserve itself has flagged for 2016.

Well under 5 per cent said there would be five rate rises.

In a further sign that the Fed may not go through with its full hiking cycle, fewer managers were bullish on the US dollar compared to December’s survey.

When asked which of the US dollar, Euro and yen would appreciate the most on a trade-weighted basis over the next 12 months, the number picking the US dollar dropped to a net 44 per cent, the lowest in three years.

Global growth expectations had fallen, the survey found, with a net 8 per cent of respondents in January expecting a stronger global economy compared to 29 per cent in December. However, only 12 per cent believed a global recession would happen in 2016.

The biggest “tail-risk” to global growth was a China recession (45 per cent), followed by an emerging market debt crisis (22 per cent) and a “geopolitical crisis” (14 per cent).

Minority responses included the Federal Reserve not lifting rates quickly enough, equity bubbles and a Eurozone breakdown.

Mining and materials remained, unsurprisingly, completely out of favour. A record 37 per cent of fund managers said they were underweight on global materials, down from 28 per cent in December.

And fund managers are expecting further weakening of the Chinese yuan, which is currently trading at ¥6.57 to the US dollar.

Only about 10 per cent expected the yuan to be trading under ¥6.70 by the end of 2016.

The rest expected the yuan to be above ¥6.70, with 37 per cent expecting a value between ¥6.71 and ¥6.90.

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