A Cautious, Careful Consensus

- The August consensus: cautious and careful "Our August FMS reveals a consensus that is cautious on global growth and risk. The bearishness of June & July has abated. But few investors hold extreme views or extreme positions right now, so directional signals from the August FMS are limited."
- Growth expectations stabilize, trough in China "The collapse in growth expectations in June and July was followed by stabilization in August. A mere 5% of investors forecast stronger global growth in the next 12 months, but a large 78% majority do not expect another recession. China growth expectations have troughed: the growth diffusion index rises sharply to -19% from -39% last month, which caused commodity exposure to rise."
- Risk metrics back in their trading range "In a new question our survey said the two largest "tail risks" are premature fiscal tightening and US municipal/EU sovereign debt defaults. That said, risk appetite in August has stabilized. The BofA-ML Risk Appetite & Liquidity Index rose to 39, a fraction below the long-term average level. The average investor cash balance fell to 3.8% from 4.4%. But hedge fund net exposure remains near a 4-year low."
- Still uw bonds, but raising exposure to commodities "No contrarian "sell signal" for bonds: global asset allocators remain stubbornly underweight bonds (exposure dropped to -23% from -15%) and modestly overweight equities (broadly unchanged at a net 12% ow). Commodity exposure has risen to 9% ow from marginally uw last month."
- Out of US/Japan into Europe/UK "Big drop in exposure to US, with a net 14% uw the market, the lowest level since Jan'08. Big drop in exposure to Japan, with a net 27% uw. A net 62% of investors view the Yen as overvalued, the highest reading on record. Big rotation into Europe (+11%) and to UK equities (lowest uw since May '07). GEM remains the most preferred region (+38%) for asset allocators but is not at extreme levels (a net 53% were ow last Nov)."
- Out of utilities/pharma into banks/industrials "August saw rotation into banks, though investors are still uw (-19%), and further rotation into industrials (+12%), financed by lower weightings in pharma (12% ow from 23% last month) and utilities (-27% = least loved sector). Tech remains the most-favoured sector (net 34% ow) despite recent underperformance."

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