Given the rise in volatility in global markets since the start of October, especially in China facing and tech stocks, you’d expect big fund managers to be all gloomy and worried.
The November global fund managers survey from Bank of America Merrill Lynch confirms the worries are extensive, but not so the gloom.
For example, just 11% of respondents expect the global economy will tip into a recession next year.
But a high proportion do see a slowdown in 2019 and expectations for global GDP growth fell to their lowest level since November 2008, which is when the GFC hit its peak following the collapse of Lehman Brothers two months earlier.
A net 44% of respondents see global growth slowing over the next year. As part of that, a net 54% see China slowing down, which is the highest level of pessimism in two years. Global earnings growth expectations are now at their lowest for more than six years.
One good measure of fear and loathing among cash levels is their level of cash holdings – surprisingly given the sell-off that fell last month to 4.7% from the very high 5.1% the month before – perhaps indicating that some of that cash was deployed into stocks on the way down in the US and emerging markets.
“We remain bearish, as investor positioning does not yet signal ‘The Big Low’ in asset markets,” Michael Hartnett, BofAML’s chief investment strategist, said in a statement with the report.
And in line with the recent pull-back in US tech stocks — which have been a key driver of US markets in recent years — allocations to the global tech sector fell to the lowest level since February 2009.
And the majority of respondents to the survey still see the S&P500 peaking above 3,000 — around 12% above current levels.
However, 30% of the fund managers surveyed now think US stocks have peaked, which is around double the previous month’s total of 16%.
Looking ahead to 2019, investors said the best-performing asset classes are likely to be non-US shares (45%), and the S&P500 (17%).
The latest Bank of America survey was carried out from November 2 to November 8. 225 panelists with a collective total of $US641 billion under management participated in the survey.
The survey did find that US stocks remain the most-favored region among respondents, with allocations climbing 10 percentage points to a net 14 percent overweight. The survey showed that during October investors also increased exposure to emerging market stocks, real estate investment trusts and health care.
But interestingly in view of the surge of political instability now happening in the UK in the wake of the putative agreement between the government and the EU on Brexit, the survey does find that allocations to UK equities are close to 20-year lows.
That’s a real sign of the escalation of fears about the financial stability in Britain because of the continuing Brexit wrangling.
Worst performers next year are tipped to be corporate and government bonds, according to the survey’s respondents, while the S&P 500 ranked third on that list as well.
Investors continue to cite the US generated trade war with China as the biggest risk, though they also are concerned about interest rate hikes from the Fed and rising levels of US corporate debt. and this week in particular.
