Big global investors seem to be positioning themselves in US and Eurozone stocks in anticipation of a solid growth performance in 2022 – regardless of inflation and supply chain problems.
While inflation remains a concern for fund managers, it isn’t being allowed to influence their positions in equity investments looking into 2022, according to the November Bank of America global fund managers survey.
The Bank America survey sees cost pressures as a worry, but some believe they will start easing in 2022 – the belief in the transitory nature of inflation remains firm.
And the bullish turnaround from October’s survey is despite 80% of those surveyed believing short term interest rates will rise sometime in the coming year.
It’s probably no mistake then that the S&P 500 and Nasdaq indexes on Wall Street hit new highs late this week, while Eurozone share markets continue at high levels, even though new Covid outbreaks are providing something of a dampener this week, knocking the Stoxx 600 index off its all-time peak reached midweek.
As a result, big global fund managers are again liking equities – especially those in the US and Europe – and running down their cash holdings a little that they built in October.
In fact, the B0A survey showed that investors are ending 2021 in “risk on” mode, with the biggest overweight of US stocks since August 2013. Allocation to US equities rose 13 percentage points month-on-month to 29% overweight.
Inflation remains the top risk, but not as much as in October and it seems that burst of negativity has eased, although the optimism is not as noticeable as in April this year.
Most global fund managers turned upbeat from their bearish leanings in October as they moved more money into equities and cut their cash holdings
Cash levels slumped month-over-month to 4.4% in November, from 4.7% in October.
The allocation to US equities of 29% overweight might sound big, but it still down from a peak of net 62% overweight in April. So those concerns about inflation and the impact of congestion and supply shortages is keeping investors on the cautious side.
The survey also found that fund managers are increasingly bullish on European equities, with 71% of participants expecting the rally to continue until at least next year, up from 65% last month.
Of the 388 fund managers surveyed, which oversee a total of $US1.2 trillion in assets, expectations of global growth improved to a net 3% in November, up from -6% in October, but down from the peak of 91% in March.
Expectations that profits will improve rose to a net 6% among survey respondents, up 21 percentage points from October, but down from the 89% peak in March.
The survey results showed 65% of fund managers expect a global economic boom over the next 12 months, while 61% say inflation is “transitory.” Meanwhile, only 6% of investors survyed expect a recession.
Investors are also more willing to take on additional risk this month, with a net 5% of fund managers taking “higher-than-normal” risk in November, up 10 percentage points from October, but down from a high of 25% in February.
After inflation at the top of the list of biggest tails risks for fund managers, at 33% (down from 48% in October), central bank rate hikes at 22% is second and China third at 20%; 44% see reducing equity exposure too early as the biggest risk to their portfolio, up from 36% last month, although 30% of investors think they might not have enough defensive hedges, up from 22%.
While central bank tightening as seen as the second biggest tail risk at 22%, that was up from zero last month and more than 80% of respondents expect short-term rates to rise over the coming year.
