Investors are moving their money out of equities and into cash in anticipation of a Greek default and a Federal Reserve rate rise this year, with record numbers taking out protection against a fall in equity markets this summer.
Global fund managers increased the amount of cash in their portfolios from 4.5 per cent last month to 4.9 per cent in June, the highest level since January and a six-year high for European fund managers, according to a Bank of America Merrill Lynch survey.
The survey highlights fears that Greece will default on its debts, with a majority of more than 150 fund managers surveyed expecting a default and only 43 per cent expecting a positive resolution to the crisis.
This week markets have been rattled after talks between Greece and its creditors broke down at the weekend, sending yields on periphery eurozone debt to their highest levels since last year.
Fund managers are increasingly expecting a Fed rate rise in the third quarter of this year, with 54 per cent now anticipating an increase in September compared with 45 per cent last month.
The prospect of a rise has raised expectations of a fall in equity markets in the next three months with corporate balance sheet leverage at its highest for five years.
Despite the concerns over Greece, European equities are still preferred by fund managers, who are optimistic about the macro outlook for the region, with a record net 83 per cent expecting stronger inflation.
“Investors remain bullish on European equities but are increasingly concerned about Greece and higher yields,” said James Barty, head of European equity strategy.
Most remain sceptical about the possibility of a Greek exit, with only 15 per cent of fund managers expecting Greece to leave the eurozone.
“Investors do not appear positioned for Greek ‘worst case’ [ . . .] we believe a peaceful Greek outcome is a necessary condition for a rally,” said the bank.
Money continued to move out of emerging markets with fund managers deterred by weak economic growth in China, the strength of the dollar and weak earning prospects, said BofA.
Chinese equities, which have risen sharply recently, are in a “bubble”, according to 70 per cent of global investors surveyed. The Shanghai Stock Exchange has jumped up around 150 per cent in the past year.