The three threats that are keeping investors awake at night

The threat of a trade war has returned to be the most cited risks by professional investors for the first time since January 2017, according the Bank of America Merrill Lynch's latest survey with 176 global fund managers.

Last week, president Donald Trump announced a raft of tariffs on $60 billion worth of Chinese goods. China responded it would retaliate with ‘necessary measures’ and ‘fight to the end’ in any trade war with the US. As a result, stock markets in the US, China and Japan tumbled. 

Therefore, it does not come as a surprise that professional investors cite the risk of a trade war as a major concern once again.  

While, the risk of a trade war was cited by 30 per cent of respondents, followed by inflation (23 per) cent and a slowdown in global growth (16 per cent), with the survey noting that expectations for faster global growth has fallen to its lowest level (18 per cent) since the UK voted to leave the European Union in June 2016. 

In addition, nearly three on four (74 per cent) of fund managers surveyed said the global economy was now in ‘late cycle’. 

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‘Cracks in the bull case are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage,’ says Michael Hartnett, chief investment strategist at Merrill Lynch. 

He continues: ‘Investors have yet to act on these fears, however, as rates and earnings are keeping the bulls bullish.’

Pessimism towards UK equities remains at an all-time high, with 42 per cent of fund managers underweight the region. Unsurprisingly, the continued economic weakness of the UK is the most likely source of this pessimism, principally as a result of continued uncertainty surrounding the UK’s exit from the EU. 

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