BofA-ML tells investors to stay 'bullish'
Strategists at Bank of America-Merrill Lynch told clients to "be bullish" given the still growing signs of pessimism among investors.
They also told investors that gold was now vulnerable to an autumn rally in risk apettite and that there were no signs that the bubble in bond markets was about to burst.
Global investors had grown even more 'bearish' over the past week, BofA-ML said, adopting their most defensive stance in their asset allocations since March 2016, ditching equities to the tune of $8.4bn while funeling $11.4bn into bonds and another $1.3bn into gold.
As a result, their 'Bull&Bear' Indicator tumbled further into 'Bull' territory on the back of redemptions in global and Emerging Market stocks and due to the "extreme" outperformance of Treasuries versus corporate bonds.
Wih readings ranging from zero to 10, denoting 'extreme bearishness' to 'extreme bullishness' on the part of investors, the 'Bull&Bear' Indicator was meant as a rough gauge of investors' fear based on changes in their asset allocations, positioning, market breadth and credit market technicals.
Historically, extreme readings tended to coincide with reversals in risk apettite - but not always in the case of stocks.
Over the past week fell from 1.3 to 0.6, with readings below 2.0 signaling a so-called 'contrarian' buy signal.
BofA-ML also pointed out how economic stimulus was increasingly shifting towards fiscal policy, which would push bond yields higher, and that contagion from the crisis in Argentina had thus far been limited with "zero sign investors worried about bond bubble".
"Investors not positioned for higher yields yet policy stimulus increasingly fiscal (in recent weeks US "explores" issuance of 100-year bond, UK announces 4.1% rise in government spending, Korea announces 9.8% rise, China set to boost infrastructure spend 7-9% (link), Germany to raise spending in case of recession (€50bn); best autumn upside in oversold, cheap cyclicals geared to rising yields, e.g. industrial metals, banks, industrials, KOSPI, NKY, HSI, DAX, RTY."