By Vicki Schmelzer
NEW YORK (MaceNews) – China GDP concerns and declining world growth expectations derailed global investor sentiment in February, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
A net of only 18% of investors polled looked for global growth to improve in the next 12 months in the February survey, down from 36% in January and 29% in December. Nevertheless, current sentiment is still much better than in January 2019, when a net 60% of investors had a bearish growth outlook, the worst outlook since July 2008.
This month’s decline in growth expectations was driven by a “plunge in China growth expectations to -53% from 50%,” the survey said. China’s GDP forecast for the coming three-year period is 5.2%, the lowest since September 2015.
“Rising COVID-19 fears, notably around Chinese growth, led to the first cut in FMS global growth, global profits and global inflation expectations since Oct’19,” BofA said.
Inflation expectations were slashed in February after surging in prior months. A net 40% of managers looked for global inflation to rise in the next 12 months, down from a net 56% in January and a net 43% in December.
Average investor cash balances slipped to 4.0% in February, versus 4.2% in the prior three months and down from 5.0% in October. Cash levels currently are at the lowest level since March 2013, the survey said.
Allocation to cash fell to a net 9% overweight in February, the lowest since April 2015 and down from a net 16% overweight in January and a net 18% overweight in December. This compared to a net 44% overweight in February 2019, which was the highest overweight since January 2009.
Despite world growth concerns, global fund managers maintained a positive leaning toward equities but also showed renewed interest in safe-haven bonds.
In February, a net 33% of managers were overweight global equities, a 20-month high. This compared to a net 32% in January and a net 31% in December.
By comparison, in June 2019 a net 21% of fund managers were underweight global equities, the lowest equity allocation since March 2009, when the S&P 500 hit a low of 666.79 in the wake of the financial crisis.
In February, a net 40% of portfolio managers were underweight bonds, versus a net 46% in January and a net 48% in December. The current bond allocation compared to a net 69% bond underweight in February 2018, which was a record low.
Fund allocation to commodities showed managers with a net 4% overweight, down from a net 10% overweight in January which was the highest since March 2012 and below the net 6% overweight seen in December.
On regional equity asset allocation, global investors moved monies back into the U.S. and emerging markets at the expense of other regions.
Allocation to U.S. stocks rose to a net 19% overweight in February, a 17-month high. This compared to a net 4% overweight in January and net 8% overweight in December.
This month, FMS investors predicted that the S&P 500, which closed at 3,380.16 Friday, will peak at 3,470, “the highest since the question was first posed in June 2018,” the survey said.
In February, a net 19% of fund managers were overweight eurozone stocks, down from a net 27% in January, which was the highest since May 2018 and the net 24% overweight seen in December.
Investors had a net 36% overweight to global emerging markets this month, the highest since March 2019. This compared to a net 32% overweight in January and a net 25% overweight in December.
EM equities continued to be “the most preferred region among FMS investors” for the fourth straight month, BoA Global said.
In February, portfolio managers flipped their Japanese equity holdings to a net 2% underweight from a net 2% overweight in January. This compared to a net 6% overweight in December, which was the highest overweight since February 2019.
UK equity allocations showed managers with a net 14% underweight this month, little changed from the 13% underweight seen in January and December but still improved from the net 21% underweight seen in November. The record UK underweight was the net 41% underweight seen in March 2018.
While U.S. election uncertainty remained the top tail risk this month, Coronavirus jitters began to overshadowed other concerns.
In February, the biggest “tail risks” feared by portfolio managers were:
“Outcome of the 2020 US Presidential election” (26% of those polled), “Bond bubble pops” (22%), “Coronavirus” (21%) and “Monetary policy impotence” (11%).
Last month, the biggest concerns were: “Outcome of 2020 US Presidential election” (29% of those polled), “Trade War” (22%), “Bond bubble pops” (20%), and “Monetary policy impotence” (14%).
In February, the “most crowded” trades were: “Long US tech and growth stocks” (51% of those polled), “Long U.S. Treasuries” (17%),
“Long IG corporate bonds” (13%) and “Short volatility” (8%).
The top “most crowded” trades in January were: “Long US tech and growth stocks” (50% of those polled), “Long IG corporate bonds” (19%), “Short volatility” (14%), and “Long U.S. Treasuries” (11%).
An overall total of 221 panelists, with $676 billion in assets under management, participated in the BofA Global Research fund manager survey, taken February 6-13, 2020. “194 participants with $632bn AUM responded to the Global FMS questions and 90 participants with $214bn AUM responded to the Regional FMS questions.” BofA said.
Email vschmelzer@finwrit.com