Investors more bearish on future economic strength
Investors’ bullishness has receded in the past month, according to Bank of America (BofA), with the number expecting a stronger economy at its lowest level since May 2020.
In its monthly Global Fund Manager Survey, the firm said the percentage of people expecting a stronger economy had fallen to a net 47% while the percentage expecting a ‘lot stronger’ economy had fallen to 22%.
Asset allocation was largely unchanged with respondents retaining a big overweight to commodities and equities and an underweight to bonds.
This was caused by three factors, Michael Hartnett, chief investment strategist, said which were the uncertainty around the tapering of quantitative easing, the tail risk of transitory inflation and the Delta COVID-19 variant.
Weightings were still focused on cyclicals, with commodities seeing their highest-ever allocations, as well as industrials and materials. Meanwhile, allocations to defensive sectors such as bonds and utilities were cut and investors were underweight emerging markets due to the crackdown on Chinese technology.
“Investor positioning relative to history is still very much tilted towards cyclicals such as the Eurozone, industrials, materials while defensives exposure has been cut again,” BofA said.
“Commodities asset allocation is at the highest ever but it’s important to note that cyclicals have fallen drastically as a percentage of the benchmark in the last 15 years. Energy and financials now make up only 18% of the MSCI ACWI compared to 36% in 2006.”
The majority of respondents thought that inflation would be transitory and the number who expected inflation would rise in the next 12 months had fallen.
They also expected the Federal Reserve would start tapering in August or September, to coincide with the annual Jackson Hole symposium, but interest rates would be unlikely to rise until January 2023. This was pushed back from November 2022 in the previous month’s survey.
AUTHOR
Laura Dew
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