LONDON (Reuters) - Investor outlooks have deteriorated to their most pessimistic in a decade, Bank of America Merrill Lynch's December investor survey showed on Tuesday.
A net 53 percent of investors surveyed, who manage $694 billion (549.01 billion pounds) in assets, said they expect global growth to weaken over the next 12 months, according to the poll, which took place from Dec. 7 to Dec. 13.
The U.S. dollar replaced technology stocks known as FAANGs in the United States - Facebook, Apple, Amazon, Netflix and Google - and China's BATs - Baidu, Alibaba and Tencent - as the most crowded trade for the first time since January, it found.
Technology stocks, in particular iPhone maker Apple, have led a recent sell-off on Wall Street, which has seen the S&P500 <.SPX> sink almost 13 percent and the Nasdaq <.NDX> drop 15 percent this year. The Nasdaq is on track for its worst quarter in a decade.
In a sign of a further darkening in mood, investors piled into bonds, often considered a haven in times of geopolitical and economic uncertainty. This month's survey found the biggest-ever one-month rotation into debt on records going back to 2001.
Bond allocation rose 23 percentage points to a net 35 percent underweight, marking the highest bond allocation since the Brexit vote in June 2016, it showed.
(Graphic) The FAANGs (YTD % change) - https://tmsnrt.rs/2A3rldF
"Investors are close to extreme bearishness," Michael Hartnett, BAML's chief investment strategist, told clients. "All eyes are on the Fed this week, and a dovish message could equal a bear market bounce."
Investors favoured emerging-market stocks the most, while they continued to cut their exposure to U.S. and euro zone equities by 8 percentage points. That took the euro zone to underweight for the first time in two years.
A net 39 percent of investors were underweight UK shares, the second-largest share on record as the approaching Brexit deadline stoked renewed uncertainty.
The outlook for corporate health weakened, too. Almost half think companies are over-leveraged, the highest level on record. Expectations for corporate profit is the worst in a decade, with a net 47 percent of investors expecting global profits will deteriorate in the next 12 months.
Nearly 60 percent of those polled think corporate margins will weaken in the next year, a six-year low.
A trade war tops the list of biggest tail risks cited by investors for the seventh straight month, followed by quantitative tightening and a slowdown in China, the world's second-largest economy, it said.
A net 37 percent expect inflation to rise over the next year, down 33 percentage points from the previous poll and a reversal from the recent peak of 82 percent in April.
(Graphic) Global market asset performance - https://tmsnrt.rs/2A5Nzf0
ADVERTISEMENT(Reporting by Josephine Mason; editing by Helen Reid, Larry King)
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