Low Cash Levels May Be Bearish Sign for Stocks

Money managers around the world are holding less cash than they have in at least two years, a bearish sign for global stock markets, many of which hover at record highs, according to an industry report released Tuesday.

The average global fund manager had 4.7% of assets in cash as of Dec. 8, down from 11.2% as recently as September 1998, according to a survey of 243 investment firms by Merrill Lynch & Co.

“With cash levels so low, fund managers don’t have as much firepower--and that’s not a good indicator for the stock markets,” said Trevor Greetham, an investment strategist at Merrill who compiled the monthly survey.

Fund managers in the U.S. and Europe have been particularly aggressive about using cash to buy stocks, helping explain recent market rallies in those regions. Over the last two months, the Standard & Poor’s 500-stock index has climbed 14%, while France’s CAC-40 index has risen 23%.

Almost simultaneously, money managers in Europe cut their cash holdings to 3% from 6%, and U.S. managers of international funds reduced their cash allocation to 1% of their portfolios, according to Merrill’s survey.