Monday 1 June 2020

Investors positioned for low growth, low rates: BofAML

DUBAI, April 17, 2019

Bank of America Merrill Lynch’s (BofAML) April Fund Managers Survey (FMS) has found that global growth expectations continue to rebound, with net 5 per cent of FMS investors expecting global growth to weaken over the next year, up 20ppt from last month.

Two-thirds of FMS investors are bearish on both the growth and inflation outlook for the global economy over the next 12 months, the highest level expecting secular stagnation since October 2016.  Only 6 per cent of investors surveyed expect a global economic recession this year; 7 out of 10 do not anticipate a recession until the second half of 2020 or beyond.

The inversion of the US Treasury yield curve does not signal an impending recession, according to 86 per cent of fund managers surveyed.

A slim majority of investors (53 per cent) think the Fed is done hiking interest rates this cycle, up 15ppt from last month; only net 13 per cent of fund managers surveyed expect higher global short-term rates, the lowest level since 2012

Average cash balance remains flat at 4.6 per cent this month; investors’ allocation to cash falls 14ppt to net 26 per cent overweight, a 14-month low.

Allocation to global equities jumps 14ppt from last month to net 17 per cent overweight, the largest increase since December 2016

European equities allocation jumps 8ppt from last month to net neutral; the UK is the least favoured region, with net 28 per cent of investors underweight, while Emerging Markets remain the most favoured, with net 34 per cent of fund managers overweight


A trade war (20 per cent) just edges out a slowdown in China (20 per cent) as the top tail risk cited by investors for the 10th time in 11 months, followed by monetary policy impotence (18 per cent)

Short European equities (25 per cent) is cited as the most crowded trade for the second month in a row, followed by Long FAANG+BAT (18 per cent), Long USD (17 per cent) and Long US Treasuries (16 per cent).
“FMS investors added a bit of cyclical risk this month but are still firmly positioned for secular stagnation,” said Michael Hartnett, chief investment strategist. “They are long assets that outperform when growth and rates fall, like cash, EM and utilities, while short assets that require higher growth and rates, such as equities, the Eurozone and banks.” – TradeArabia News Service


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