Global growth expectations are still a big concern for investors, according to the March Bank of America Merrill Lynch (BofAML) fund manager survey, which reveals 25 percent of those surveyed expecting global growth to weaken over the next year.
This is, however, a positive when compared with the 46 percent of investors who said they expected global growth to weaken over the following 12 months in last month’s survey.
Inflation expectations also see something of a rebound, with 34 percent of investors expecting a higher global consumer price index in the next 12 months, a 13 percentage-point increase on last month.
When asked about the US Fed, 55 percent of those surveyed say they think the Fed will continue to hike rates, while 38 percent think the hiking cycle is done, highlighting a lack of real consensus. In comparison, only 28 percent think short-term rates will rise in the next 12 months, a six-year low.
Views on currencies reveal some interesting numbers: 50 percent of investors say the US dollar is overvalued, a 16-year high, and 38 percent say the British pound is undervalued – the lowest level since the question was first asked in 2002.
When it comes to risks, a slowdown in China (30 percent) leads the list of biggest tail risks cited by investors, followed by a trade war (19 percent), which had topped the list for the previous nine months. Third on this month’s list is a corporate credit crunch (10 percent).
Short European equities (19 percent) is cited as the most crowded trade for the first time in the survey’s history – an indication of the confused state of European politics – replacing long emerging markets (16 percent), which drops to fourth.
Long US dollar (18 percent) comes second and long Faang (Facebook, Apple, Amazon, Netflix and Google) plus Bat (Baidu, Alibaba, Tencent) comes third, at 16 percent, though conviction is low, with only 3 percent separating the first and fourth-most crowded trades.
The allocation to global equities continues to fall to just 3 percent overweight, the lowest level since September 2016. Thirty percent of hedge fund investors surveyed say they are long equities, the lowest level since December 2016.
The average cash balance has fallen 0.2 percentage points to 4.6 percent this month, showing an improved risk appetite, BofAML says.
‘The pain trade for stocks is still up,’ says Michael Hartnett, BofAML chief investment strategist, in a statement. ‘Despite rising profit expectations, lower rate expectations and falling cash levels, stock allocations continue to drop. There is simply no greed to sell in equities.’
