Fund managers most bullish on rates in 23 years

Global fund managers are starting the year with an optimistic mindset, with more than 40 per cent expecting 2024 to successfully avoid a recession. 

The monthly Bank of America Global Fund Manager Survey has found the number of respondents expecting no recession this year has increased from 33 per cent in the previous month to 41 per cent.

December’s biggest tail risk of a global recession did not even feature on this month’s list of tail risks, with respondents instead concerned about worsening geopolitics, an economic hard landing and higher inflation. 

Of those who did forecast a recession this year, 25 per cent said it would not happen until the second half of the year. 

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Regarding interest rates, Bank of America said respondents “have never been as bullish on short-term rates” since the bank started its survey in April 2001, with a record 91 per cent expecting short-term rates to be lower in the next 12 months. This is up from 87 per cent in December. 

There is the expectation that the Federal Reserve will move to cut rates this year although it could take longer to feed through to Australia.

Sentiment at the end of 2023 was the most upbeat for two years with respondents holding their lowest allocations to cash since April 2021 at a net 3 per cent overweight and increasing their equity weightings to the highest overweight since February 2022. 

Respondents continued their overweight to equities for the third month after 18 months of underweight allocations from May 2022 to October 2023. However, the overweight dropped slightly in January by 6 percentage points to a net 9 per cent overweight. 

They particularly increased weightings to US and emerging markets equities, while decreasing those to UK, Eurozone and Japanese equities. 

A net 40 per cent of investors are expecting a weaker economy in the next 12 months, down 10 percentage points from December – the most optimistic sentiment since February 2022.

Cash weightings rose slightly from 4.5 per cent to 4.8 per cent as bond market optimism tempered.

Bond weightings “collapsed”, the bank said, by a 17 percentage point drop, although fund managers remain overweight.

Looking at sector allocations, investors rotated into REITs, consumer staples, commodities and cash, and out of bonds, banks, insurance, telecoms and UK equities. 

January’s survey questioned 256 panellists with US$669 billion in assets under management between 5 January and 11 January. 

Click here to read what Australian commentators are forecasting for the Reserve Bank of Australia this year.