Expect U-shaped recovery but second virus wave remains risk

Over half of investors expect to see a U-shaped recovery from the COVID-19 pandemic, according to a Bank of America survey.

Nearly all participants of the survey also expected a recession in the next 12 months.

In its latest monthly survey, the firm surveyed 207 panellists with US $597 billion ($944.3 billion) in assets under management.

It found 52% of respondents expected a U-shaped recovery from COVID-19, 22% said W-shaped and 15% V-shaped but the prospect of a ‘second wave’ of the virus was the biggest tail for markets.

Some 93% of participants surveyed said they expected a recession in the next 12 months, the highest rates since March 2009. The majority also expected to see below-trend growth and inflation in the global economy over the next 12 months.

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Meanwhile, cash levels were at their highest since the 9/11 disaster in 2001 at 5.9%, up from 5.1% in March, which indicated ‘high levels of pessimism’ among investors.

In light of this, they were slashing their exposure to cyclical assets such as banks and consumer discretionary stocks in favour of allocations to consumer staples and technology stocks. In particular, healthcare exposure was at a record high and energy was at a record low.

“Investors continue to own growth (technology), increase their exposure to defensives (healthcare, consumer staples) and slash allocations to sectors geared to cyclical growth (energy, resources and banks),” the survey said.

Allocations to US and Japan equities were up, Eurozone, UK and emerging equities were down.