Big global investors seem to be a pretty sanguine lot at the moment, judging by the way they view the threat to global stability from Russia, energy prices and economic activity across Europe.
The February survey of big global investors (363 investors managing more than $US1 trillion of investments between February 4 and February 10) revealed they only ranked Russia-Ukraine as the 5th most serious “tail risk”.
Russia’s Ukraine adventures were certainly a rising risk at the start of February – in fact it has been a rising issue since late December.
Central bank tightening was the first – even though most have come to terms with the Fed lifting rates at its March meeting.
While they have gone back to larger holdings of cash, the most striking change was their underweight position in tech stocks (helping explain the continuing slide in Nasdaq and the many tech giants listed there and on the New York Exchange).
In fact the underweight tech position is the largest in more than 15 years so it would be safe to say they are “bearish’
Cash allocations jumped to their highest level since May 2020 as they also fretted about inflation (a hardly perennial for the past year).
Hawkish central banks, inflation and asset bubbles being the top three market concerns, but only 30% of investors expect an equity bear market in 2022.
Despite the worries about central banks and interest rates, some 41% of investors surveyed now expect a flatter yield curve. So they are hawkish on central bank monetary policy tightenings, but not overly concerned.
Covid didn’t really get a look in either.
So here are some numbers in the survey (and some are contradictory).
Central bank rate hikes top the list as the biggest tail risk for fund managers at 41%, followed by inflation at 23%, an asset bubble at 11%, a global recession at 8% and the Russia-Ukraine conflict at 7%.
Cash levels jumped month-over-month to 5.3% in February, from 5% in January. That’s probably a far better reading of the way they really feel about things, especially Russia-Ukraine than any listing of ‘tail risks’.
A year ago fund managers were far more optimistic and cash levels were around 3.8%. But no mention of gold, precious metals or commodities (which continue to do very well globally).
A net 10% among survey respondents expect global profits to fall over the next year. In January, a net 10% of respondents said global profits would improve during the next 12 months.
The survey showed that 65% of fund managers expect a global economic boom (above-trend growth and inflation) over the next 12 months, down from 71% in January.
As well, 52% of respondents believe inflation is transitory, while 39% believe it is permanent. (If that’s the case why are so many managers still clamouring for a rate rise?). Only 2% of respondents expect a recession.
More than confused by the contradictions?
The low ranking for the Russia-Ukraine tensions might have been the fifth biggest “tail risk” for markets but that is a ranking that would have been higher had the survey been done a week later.
Just look at the way gold prices have risen since February 10 – jumping from $US1,837 an ounce on that day to around $US1,901 an ounce on Thursday (for the first time in a year).
That is a gain of more than 3.5% in five trading sessions. Oil prices fell on Thursday but they have been as high as $US96.78 a barrel for Brent style crude this week, up 5% in a week from the near $US91 a barrel on February 10.
The Russia-Ukraine tensions are the current major driver of inflation and the push for interest rate rises, following by the supply chain problems (which were triggered by Covid).
