Investors across the globe are positioning themselves for a "summer of shocks", a new survey shows. The Brexit referendum, fear of a Chinese default and concerns that loose monetary policy will fail to ignite the economy are among the key threats cited in the latest Bank of America Merrill Lynch Fund Manager Survey.
Nearly 71 percent of investors say Brexit is either "unlikely" or "not at all likely" but the big plunge in U.K. equity allocations this month suggests they have prepared for the worst.
Brexit is seen as the biggest "tail risk" for fund managers across the globe taking part. The survey involving 168 participants with $505 billion assets under management found 27 percent of fund managers pointing to a default or devaluation in China as the biggest risk. Chinese growth expectations fall sharply to net 50 percent expecting a weaker economy, as compared to 22 percent last month.
Quantitative failure, the risk of central bank policy failing, is also considered a big risk by nearly 15 percent of those surveyed.
On the U.K. equity front, fund managers believe allocations have plunged to their lowest level since November 2008 while a net 20 percent of investors think sterling has hit the second most undervalued reading on record, citing it as a good opportunity for traders looking to sell U.K. volatility or buy upside optionality.