Investors hold cash on fears of EU collapse

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Cash allocation levels have reached 15-year highs this month as investors worry about the collapse of the European Union, as well as a bond market crash and a possible Donald Trump presidency, figures from Bank of America Merrill Lynch show.

Cash now represents 5.8 per cent of holdings, up from 5.5 per cent in September the survey of global fund managers showed.

While fears about the collapse of the EU had fallen from September, it was still listed by fund managers as the biggest tail risk. Likewise, while fears of a Trump presidency still ranked in the top three tail risks, they had subsided from September, when the Republican candidate was polling higher.

However, a bond market collapse did not feature in last month’s survey, but this month featured as the second biggest tail risk. Concerns that the ECB or the Bank of Japan would taper their respective quantitative easing programmes also appeared on the survey this month, alongside a European banks default.

While globally fund managers are concerned about the viability of the European Union, fund managers from the region were more upbeat about its economic outlook.

The difference between European fund managers who expected the economic outlook to improve in the next year and those who thought it would deteriorate was 35 percentage points, up from net 28 percentage points in September.

Fund managers from the region listed renewed program of stimulus and global reacceleration as the most important source of Eurozone growth.