Macroeconomic concerns and the upcoming US election have caused fund managers to turn pessimistic on global economic growth.
The monthly Bank of America Global Fund Manager Survey questioned 242 panellists with US$632 billion in assets under management between 5 and 11 July.
Overall fund manager sentiment, which is based on cash levels, equity allocations and economic growth expectations, dropped from 6.0 to 4.9, which the firm attributed to macro pessimism.
A net 27 per cent of investors said they are expecting to see a weaker economy in the next 12 months, and economic sentiment “collapsed” by 21 percentage points month-on-month to a six-month low.
“July fund manager sentiment fell to the lowest level in four months on rising macro pessimism. Our broadest measure of FMS sentiment dropped to 4.9 from 6.0 last month,” the bank said.
“The rise in global growth pessimism this month is driven in part by a more negative outlook on US growth, a net 53 per cent of investors expect the US economy to weaken, the most since December 2023.”
Bank of America also specifically raised its own concerns about the risk of a hard landing, as the percentage of respondents expecting to see a hard landing has more than doubled from 5 per cent in June to 11 per cent in July.
“We believe hard landing risks are underpriced given the slowdown of the US consumer, labour market, government spending. This makes us most bullish on golds and bonds in the second half of 2024.”
Geopolitical conflict has overtaken high inflation as the leading tail risk for the first time in six months at 26 per cent, compared to 22 per cent for high inflation. The US recession is in third place at 18 per cent.
Regarding the upcoming US presidential election in November, 77 per cent of fund managers said they expected, if the same party was able to win both the White House and the Congress, that this would lead to higher bond yields.
Around half said it would lead to a higher US dollar or higher US equities.
The area expected to be most affected by the election is trade policy, cited by 48 per cent of respondents, followed by immigration and geopolitics at 15 per cent and 13 per cent, respectively. The percentage concerned about geopolitical risk has declined during the month.
However, despite election concerns, allocations to US equities jumped by 8 percentage points month-on-month to a five-month high of net 16 per cent overweight.
Asset allocation
As to how this is playing out in terms of their asset allocation, respondents said they remain overweight on equities and underweight on bonds. However, the skew is less pronounced this month as equity allocations fell by 6 percentage points and bonds allocations rose by 8 percentage points.
During the month, they increased their exposure to US, emerging market and UK equities and utilities, and reduced their allocation to Eurozone equities, commodities and consumer discretionary stocks.
Eurozone equities, in particular, fell by 20 percentage points month-on-month to a net 10 per cent overweight as France saw a national vote and subsequent shock result.
UK equities, where the country also saw a national election during the month that switched leadership from the Conservative to the Labour party, increased by 8 percentage points month-on-month to a net 4 per cent underweight. Bank of America said this is the highest allocation made by respondents since July 2022, but noted they have been consistently underweight to the country since July 2021.
Average cash levels rose slightly from 4 per cent to 4.1 per cent, while allocations to real estate and commodities both fell.
