Investors back US as safe haven as global slowdown fears grow

Invest American, too: fund managers are increasingly cautious on the global economy but favour US assets, in part because of Donald Trump's tax cuts - Getty Images North America

Investors are ditching emerging markets and heading stateside in anticipation of a worldwide economic slowdown, which the US should weather most strongly.

Optimism in the global economy slumped to a six-year low, according to Bank of America Merrill Lynch’s regular fund manager survey.

The proportion of managers anticipating a slowdown in the next 12 months outweighed those predicting stronger growth by a margin of 24 percentage points, the strongest negative score since December 2011.

Emerging markets, equities and commodities are all fading from favour, while the US and Japan are benefitting as investors seek safety.

Donald Trump’s tax cuts are another factor fuelling ongoing interest in US corporates, driving the profit outlook to its strongest on record.

Emerging markets are out of favour with investors while the US surges ahead Credit: Bank of America Merrill Lynch

As the outlook for emerging markets has fallen the gap between the two is at its biggest in four years - representing a so-called ‘decoupling’ of growth between the US and much of the rest of the world.

The UK is also out of favour as is, to a lesser extent, the eurozone.

Another indicator of caution is rising cash balances. Fund managers have increased their cash holdings to 5.1pc of their portfolios, up from a long-term average of 4.5pc.

“Investors are holding on to more cash, telling us they are bearish [on] growth and bullish [on] US decoupling,” said Michael Hartnett, BAML’s chief investment strategist.

Globally investors are still keen on the technology sector with its impressive recent returns highlighted by Apple and Amazon reaching market valuations of more than $1 trillion each.

BAML found that for the eighth consecutive month the most crowded trade is to back Facebook, Amazon, Apple, Netflix and Google in the US, plus Chinese giants Baidu, Alibaba and Tencent.

However there are signs of caution here, too.

Investors are increasingly gloomy on the global economic outlook Credit: Bank of America Merill Lynch

Investors in Europe cut back their tech exposure with more investors declaring themselves ‘underweight’ than ‘overweight’ on the sector this month. This represents the weakest reading on the industry in nine years as investors sold up to take profits on their positions.

As a result healthcare - a much more defensive sector - has taken the lead as the most popular industry among European investors.

Globally, the trade war is still considered the biggest risk to the growth outlook, but worries over a slowdown in China edged up.