Investors Still Bearish, But Hopes Edge Upward: BofA
Stagflation and recession remain serious concerns, but 88% expect lower inflation in the next year, the survey finds.
Investors remain bearish, but no longer “apocalyptically” as their hopes rise for an end to inflation and interest rate shocks in coming quarters, according to Bank of America Global Research’s August fund manager survey, released Tuesday.
Eighty-eight percent expect lower inflation over the next 12 months. And more than half cited U.S. PCE inflation dropping below 4% as the most likely reason the Federal Reserve might “pause” or “pivot” in 2022.
Investors’ optimism about global growth bounced up from July’s record low of -79% to -67%, while their stagflation expectations, characterized by below-trend growth and above-trend inflation, remained flat at a record high of 90%.
The percentage of investors who said they expect the global economy to experience recession in the next 12 months rose to 58% from 47% last months, the highest level since May 2020, BofA said.
As recession concerns persist, investors said they want companies to prioritize strengthening balance sheets over increasing capital spending and buybacks.
BofA conducted the survey from Aug. 5 to Aug. 11 among 284 fund managers around the globe with $752 billion in assets under management.
Allocations
Forty-seven percent of respondents said they are taking lower-than-normal risk levels, down from July’s record 58%.
Fund managers’ cash levels eased somewhat in August to 5.7% from 6.1% in July, but still remain well above the long-term average of 4.8%, according to BofA. Cash allocations fell 2 points month over month to net 48% overweight.
Equity allocation increased 18 points from July to net 26% underweight this month. And for the first time since August 2020, investors said they expect growth stocks to outperform value stocks in the next 12 months.
Investors’ bond allocation increased 3 points to net 28% underweight, the smallest net underweight since June 2020.
U.S. equities led regional allocations, rising 15 points from July to 10% overweight. This compared with the Eurozone’s 34% underweight, emerging markets’ 9% underweight and Japan’s 6% underweight.
Forty-two percent of investors said the long U.S. dollar was the most crowded trade in August, far ahead of 14% who said it was long oil/commodities and 9% who cited long cash.
For 39% of respondents in the August survey, the biggest tail risk was inflation staying high, followed by 24% who worried about a global recession and 16% about hawkish central banks.