Global growth optimism reaches record low: BoA
The latest Bank of America Global Fund Manager Survey shows that optimism about the global economy has fallen to all-time low.
The growing risk of a global recession was now the biggest worry of fund managers, according to Bank of America, as concerns mounted that a “fast and furious” Federal Reserve would derail economic growth with tighter monetary policy.
The closely-watched monthly survey found that 26% of asset allocators said the most serious risk in the market at the moment is ‘global recession’ while another 25% cited ‘hawkish central banks’.
With inflation coming in third place, the Russia/Ukraine conflict – which was seen as last month’s largest risk by a significant margin – had become the fourth-most serious concern after being chosen by 16% of fund managers.
Investor sentiment on the global economy was described as “bearish” by Bank of America. A net 71% of asset allocators were now expecting a weaker economy over the coming 12 months, the lowest-ever level recorded in the survey (which dates back to 1995).
Part of this nervousness stemmed from the Federal Reserve’s plan to hike interest rates. Managers now thought the central bank would lift rates between six and eight times this year (up from less than four times in the previous survey) and expected the tightening cycle to be finished in the first half of 2023.
Two-thirds of fund managers were expecting the global economy to go through a bout of stagflation – or below-trend growth and above-trend inflation. This was the most since August 2008, when the world was dealing with the Global Financial Crisis.
Some 30% were anticipating boom conditions of above-trend growth and inflation while only 1% expect the ‘Goldilocks’ scenario of above-trend growth combined with below-trend inflation.
That said, investors had moved towards risk assets in April, albeit from “depressed levels”. The allocation to equities increased, with the proportion of managers’ saying they are overweight stocks increasing by 2 percentage points to a net 6%.
But this was 0.9 standard deviations below the long-term average proportion of fund managers being overweight equities.
“The disconnect between global growth and equity allocation remains staggering,” Bank of America’s analysts said. “Investors got slightly more bullish on equities. Though still at depressed levels, equities are nowhere near ‘recessionary’ close-your-eyes-and-buy levels.”
The survey polled 292 asset allocators who run a total of $833 billion. The survey was carried out between 1 and 7 April.
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