A decline in world equity markets of 4.9% between July 2 and July 9 has forced investors to sale back their risk taking and return to recession-proof stocks, according to Merrill Lynch's monthly survey of fund managers.

According to the Bank of America unit, average cash balances rose to 4.7% in July from 4.2% a month earlier. A net 11% of respondents are now overweighting pharmaceuticals compared with a net 2% underweighting of the sector in June.

Exposure to staples and telecoms also rose. The percentage of investors overweighting materials - a more cyclical sector - fell to a net 1% from a net 15% a month earlier.

Confidence in the global economy remains strong, however, as 79% of respondents said they expect global growth will improve in the next 12 months, up from 78% in June.

“July’s survey shows confidence in global markets remains very fragile,” said Michael Hartnett, chief global strategist at Banc of America Securities-Merrill Lynch. “Investors believe the worst is over for the economy but are very narrowly positioned for recovery in emerging markets and technology stocks.”


Gary Baker, head of European equity strategy at the firm, added, “The market’s pull back now poses the question of whether investors have the courage of their convictions to invest for economic recovery in the second half of the year.”


A total of 221 managers overseeing $635 billion participated in the survey.

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