LONDON (Reuters) - Global investors were crowded into so-called FAANG and BAT (LON:BATS) tech shares in March and continue to cling to equity holdings despite fears of trade wars and growth slowdown, Bank of America (NYSE:BAC) Merrill Lynch's latest monthly survey showed on Tuesday.
The survey of fund managers running $579 billion worldwide was conducted March 9-15 and showed that investors were likely heavily exposed to tech shares, just before Monday's Wall Street plunge that was triggered by calls for more regulation on giant technology firms.
Facebook (NASDAQ:FB) shares tumbled 7 percent on Monday amid calls on the firm from U.S. and European lawmakers to explain alleged misuse of its user data. That triggered heavy falls across most of the tech sector worldwide.
The BAML survey found investors were "long" the tech sector, calling it the No. 1 crowded trade, with a net 38 percent overweight. Short dollar positions were in second place among crowded trades at 17 percent.
Much of the equity bull run of recent years has been driven by tech shares, dubbed FAANG in the United States after Facebook, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) (Google), and BAT in China for Baidoo, Alibaba (NYSE:BABA) and Tencent.
But MSCI's U.S. tech index is down more than 4 percent this week after rising almost 40 percent in 2017, taking down their emerging market counterparts as well.
BAML's survey also revealed investors growing jittery about brewing trade wars - growth expectations are now the lowest since July 2016 and inflation expectations the highest since June 2004, BAML said, noting "cracks in the bull case".
"Investors have yet to act on these fears, however, as rates and earnings are keeping the bulls bullish," Michael Hartnett, BAML's chief investment strategist, said.
The survey found more than half of funds expect global earnings-per-share to grow more than 10 percent in the coming year. And U.S. 10-year bond yields would need to hit 3.6 percent to trigger allocations away from equities, poll participants said.
Trade war was identified by the survey as the biggest tail risk for the first time since January 2017, the month when U.S. President Donald Trump took office with threats to impose import tariffs on several categories of goods especially from China.
On other markets, pessimism toward UK equities hit a record high, with a net 42 percent of investors underweight the British market, as the country heads towards exiting the euro zone with its economy in dissatisfactory shape.
A net 26 percent of funds were overweight Japan, however, and for the first time since 2009, the majority of managers said they did not expect the yen to depreciate over the coming year.
European money managers, meanwhile, were growing increasingly pessimistic.
Only 9 percent of European funds surveyed expected growth to improve in the coming 12 months, a 38 percent fall from last month's poll, while the net proportion expecting stronger company earnings also plummeted by 37 percent on the month.
"Trade war is seen as the biggest tail risk and Germany is seen as the second most vulnerable equity market to trade wars, behind emerging markets," the survey added.
