The number of investors who believe the oil price is undervalued is the highest since April 2009, according to the latest survey of fund managers by Bank of America Merrill Lynch.
The survey also reveals that nearly 70% of global fund managers believe that deflation is the big risk for next year, while 60% say the most crowded trade of the moment is the US dollar.
The second most crowded trade is that of US high-yield bonds, with around 20% of the participants citing it.
The survey was carried out between December 5 and December 11 among 165 participants with $446 billion worth of assets under management (AUM).
It shows a “capitulation” in commodities, with 36% of participants saying the oil price is now undervalued.
The collapse in the oil price has led to a “big rotation” out of energy and materials and into the US dollar, cash, the eurozone (last month’s contrarian trade), global technology and discretionary stocks.
There is a record low exposure to the resources. The consensus is long deflation, cash and the dollar, and short inflation, risk and commodities.
This month’s contrarian trades would be long energy, materials, commodities and emerging markets. The contrarian shorts are telecoms, consumer discretionary, Japan, banks and tech, according to the survey.
Cash level jumped above 5% and well above the 4.5% level where they trigger a risk “buy” signal. The survey shows the highest percentage of fund managers who are overweight cash since June 2012.
Asked what the best performing asset class of 2015 will be, 67% of the fund managers in the survey said equities, 22% said currencies and commodities, 4% said government bonds and 2% said corporate bonds.
The number of investors who believe the European Central Bank will start buying sovereign bonds in the first quarter of next year has jumped to 63% this month from November’s 41%.
In the ECB’s last news conference of the year, Mario Draghi said the bank was ready to go ahead with quantitative easing without having the consent of all the members of the governing council, a hint that German opposition to the move would be defied.
Investors have brought forward their expectations regarding the Federal Reserve’s first rate hike, with 41% now expecting it in the second quarter of next year, instead of the third quarter.
The biggest risks that fund managers see ahead are geopolitics (with 23% of participants citing it), eurozone deflation (22%) and defaults on debts in China (16%).