Investors have responded to the 25 per cent fall in the oil price in recent weeks by reducing their liquidity levels, according to the latest Merrill Lynch survey of global fund managers.
The monthly survey found financial stocks have been the major beneficiaries of a fall in cash levels to 3.8 per cent of assets in October from 4.4 per cent in August.
A net 21 per cent of respondents said they had an overweight position in global bank and insurer stocks in October, up from 15 per cent in September and 10 per cent in August.
“The market perception is that the oil price is a good proxy for inflation expectations,” said independent consultant to Merrill Lynch David Bowers.
“In recent months, this survey showed investors were looking for a catalyst to put liquidity back into the market, and now they have it.”
With crude oil prices falling steadily since August, investors have regained confidence that inflation will stay under control.
At the same time, Bowers said, a net 23 per cent of respondents believe it “unlikely” stocks would fall over the next six months, versus 10 per cent who took this view in August.
