NEW YORK — More than 400 global fund managers surveyed by Bank of America are showing serious doubts about the future of the world’s economy and its markets, becoming the least “bullish” since October 2020 and therefore boosting their cash allocation also to a 12-month high level.
The study, known as Global Fund Manager Survey and conducted between October 8th and 14th, shows that the economic expectations have turned negative for the first time in 18 months, while global profit expectations also became negative. “Global GDP & EPS readings show macro momentum weakest since COVID shock of spring’ 20,” analysts Michael Hartnett, David A. Jones, Shirley Wu and Myung-Jee Jung wrote in a research note to investors discussing the main findings of the survey.
At the same time investors’ exposure to the so-called emerging markets is declining to the lowest level since September 2018, leaving Europe as the number one investment destination for equities. In the case of fixed-income, investors showed the most pessimistic view on bonds since Bank of America started conducting the survey in 1994.
“Investors are very UW emerging markets on a historical basis and want to cut exposure in the next 12 months as China fears weighed on sentiment,” the analysts said in the note.
Under the titled “Bulls Go Into Lockdown”, the report compiles the opinion of 430 fund managers, chief investment officers, economists and strategists, with USD1.3 trillion in assets under management (AUM). The report was issued on October 19
The survey also underscores that relative to historical data investors are now “very overweight inflation assets”, such as commodities and banks, while at the same time are “very underweight” on the type of assets that are vulnerable to interest rate hikes, like bonds, emerging markets and utilities.
In fact, global bond allocation fell to the lowest level ever to a net -80% as expectations for higher rates continued to rise on the back of inflation fears, the analysts said in the report. In the other hand, a net 5% of the investors are now under weight emerging market equities.
Just last week the International Monetary Fund issued its World Economic Outlook, projecting that the global economy will grow 5.9% this year followed by another 4.9% in 2022. The 2021 projection is only 0.1% lower that the previous estimate reflecting a downgrade for advanced economies, in part due to supply disruption, and for low-income developing countries, largely due to worsening pandemic dynamics, the institution said in its report.
Amongst the investors surveyed by Bank of America the allocation to emerging markets equities fell 3ppt m/m to net 5% underweight, the largest underweight since Sep’18, the survey show. Current allocation is 1.1 stdev below its long- term average.
The study also shows that global investors are now having the most pessimistic outlook for bonds since Bank of America started conducting the survey in 1994. “The global bond allocation fell to the lowest level ever to a net -80% as expectations for higher rates continued to rise on the back of inflation fears,” the analysts said in the report.
The survey’s respondents are now on average expecting 1.1 hikes by the U.S. Federal Reserve in 2022. Of the total universe surveyed 44% expect one rate increase, while 24% see only two, and 24% project none, the report said.
Note: Story updated at 3:47pm EDT to add the date since Bank of America started the Global Fund Manager Survey.