Global investors cut allocations to UK equities in September: BofA

Bloomberg

Global investors slashed allocations to UK equities in the month after Liz Truss became prime minister, a Bank of America Corp. (BofA) survey showed.
Exposure to British stocks “collapsed,” with allocations dropping by nine percentage points compared with the previous month, according to BofA’s global fund manager survey in October. A net 33% of investors are now underweight UK equities, the most in nearly two years.
Unfunded tax cuts announced by Truss’s government late last month triggered a selloff across UK assets. While they have recovered from the worst of the losses after a change of chancellor and emergency debt purchases by the Bank of England (BOE), uncertainty lingers around the country’s policies, leadership and the economy.
On Tuesday, UK bonds extended losses across the curve after the BOE denied a report in the Financial Times that active sales of gilts would be delayed. The FTSE 250 Index of more domestically exposed stocks erased earlier gains.
BofA’s survey also showed that investors reduced their underweight stance on euro-area stocks over the past month by 10 percentage points, leaving the UK as the market investors are most pessimistic about.
In another indication of bearishness, going short on UK debt and equities was among the most crowded trades in October. The survey ran between October 7 and October 13, just a month after Truss’s appointment as the prime minister.

BofA survey ‘screams’
capitulation with rally
set for early 2023
The sentiment on stocks and global growth among fund managers surveyed by BofA shows full capitulation, opening the way to an equities rally in 2023.
The bank’s monthly global fund manager survey “screams macro capitulation, investor capitulation, start of policy capitulation,” strategists led by Michael Hartnett wrote in a note. They expect stocks to bottom in the first half of 2023 after the Federal Reserve finally pivots away from the raising interest rates.
“Market liquidity has deteriorated significantly,” the strategists said, noting that investors have 6.3% of their portfolios in cash, the highest since April 2001, and that a net 49% of participants are underweight equities.
“While the stock market was immune to the bleak sentiment till last month, it has started to better reflect the investors’ pessimism,” Hartnett wrote.
As the earnings season gains traction, 83% of investors expect global profits to worsen over the next 12 months. A net 91% said global corporate profits are unlikely to rise 10% or more in the next year — the most since the global financial crisis — a sign that suggests further downside to S&P 500 earnings estimates, according to the strategists.
Global equities have rallied in recent days amid support from technical levels, changes in UK government policies and a focus on earnings. Hartnett and his team described the rally after a US inflation print last week as a “bear hug.”