Global fund managers are no longer predicting a recession for the first time in almost two years, according to Bank of America.
Its monthly Global Fund Manager Survey questioned 249 panelists with US$656 billion in assets under management between 2 and 8 February.
It said: “Expectations for strong macro and no recession keep investors in the ‘soft landing’ camp at 65 per cent, with ‘hard landing’ probability fading to just 11 per cent. A rising percentage of investors expect ‘no landing’ at 19 per cent, up from 7 per cent in January and now higher than the percentage expecting ‘hard landing’.”
Global growth optimism is the highest since February 2022, prompted by lower interest rates this year. Some 90 per cent of investors said they expect short-term rates to fall this year and 77 per cent expect lower inflation. Just 4 per cent said they expect rates to be higher in the short term.
Although over three-quarters expect lower inflation, higher inflation is seen as the biggest tail risk followed by geopolitics and a systemic credit event. This is up from the fourth position in the previous month.
As a result, they have cut their cash weightings from 4.8 per cent to 4.2 per cent, thanks to an improved macro outlook and reduced risk perception.
Overall fund manager sentiment, which is based on cash levels, equity allocation and economic growth expectations, rose from 2.9 last month to 4.1 to its most bullish level in more than two years.
Allocations to US equities are the highest since November 2021, with a net 21 per cent overweight, and particularly increased their allocations to technology to a net 36 per cent overweight. Tech replaced healthcare, Bank of America said, for the first time since July 2021 as a the most overweight equity sector.
On the flip side, allocations to China were “bleak” with a quarter saying the right allocation is to hold a structural underweight to the country. China real estate was also viewed as the most likely source of a global credit event.
Earlier this year, Chinese property developer Evergrande was ordered to be liquidated after the company failed to reach a restructuring agreement with its creditors since defaulting on its onshore bonds in December 2021.
When asked what development would prompt them to increase their China allocation, 33 per cent stated aggressive fiscal policy to boost real estate, followed by an easing of political tensions between the US and China and an easing of corporate sector regulation.
