–In April, Global Investors Extremely Pessimistic Re World Growth
By Vicki Schmelzer
NEW YORK (MaceNews) – Recession fears dominated in April, with global investors extremely pessimistic about world growth prospects in the wake of the spread of COVID-19, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
A record net 93% of portfolio managers polled this month looked for recession, or two consecutive negative quarters of GDP, in the next 12 months, the survey noted.
This compared to the previous peak of a net 86% looking for recession in March 2009, the month when the S&P 500 posted a low of 666.79 in the wake of the financial crisis.
At the same time, global growth expectations improved in April, with a net 2% of those polled (47% stronger/49% weaker) looking for growth to weaken in the coming 12 months. In March, a net 49% of investors polled looked for global growth to deteriorate in the coming year, which was a record 67 percentage point month-on-month drop in expectations, the survey said.
Current investor sentiment is better than in January 2019, when a net 60% of investors had a bearish global growth outlook, the worst outlook for the world economy since July 2008.
On inflation expectations, a net 10% of fund managers looked for lower global CPI in the next 12 months versus a net 31% with that view in March. In February, a net 40% of managers looked for global inflation to rise in the next 12 months.
Average cash balances rose to 5.9% in April versus 5.1% in March and 4.0% in February. Average cash balances are now at the highest level since the 9/11 terrorist attack, the survey said.
In addition, allocation to cash rose to a net 54% overweight this month, the highest since October 2008 and the second highest reading in the survey history, BofA Global said. This compared to a net 41% overweight in March and a net 9% overweight in February.
This month, global investors continued to shun world equities.
In April, a net 27% of portfolio managers were underweight global stocks, the lowest allocation since March 2009. Last month, a net 2% of managers were underweight global equities and in February, a net 33% of managers were overweight global equities.
This month, a net 28% of portfolio managers were underweight bonds, unchanged from March and compared to a net 40% underweight in February.
In April, fund managers had a net 9% underweight to commodities, versus a net 6% underweight in March and a net 4% overweight in February. April’s underweight was the lowest reading since September 2018 and a sharp contrast to the net 10% overweight seen in January, which was the highest allocation since March 2012.
On regional equity asset allocation, the U.S. and emerging markets remained the sole regions where allocations saw a net overweight.
Allocation to U.S. stocks stood at a net 15% overweight in April versus a net 3% overweight in March and a net 19% overweight in February.
As a reminder, in February FMS investors predicted that the S&P 500, which posted a record high of 3,393.52 February 19, would peak at 3,470. From the lifetime peak in mid-February to the low of 2,191.86 seen March 23, the S&P 500 fell 35.4%. The index held at 2,830 at the time of writing, up about 29% from last month’s bottom.
In April, a net 12% of fund managers were underweight eurozone stocks, the lowest reading since August 2012, and compared to a net 7% underweight in March and a net 19% overweight in February.
Investors had a net 6% overweight to global emerging market equities this month, versus a net 17% overweight in March and a net 36% overweight in February.
In April, portfolio managers had a net 14% underweight in Japanese equities, compared to a net 16% underweight in March and a net 2% underweight in February.
UK equity allocations showed managers with a net 31% underweight this month, versus a net 21% underweight in March and a net 14% underweight in February.
This month, COVID-19 uncertainty again overshadowed all other concerns.
In April, the biggest “tail risks” feared by portfolio managers were:
“Coronavirus second wave” (57% of those polled), “Systemic credit event” (30%), “V-shaped recovery” (9%) and “Outcome of 2020 U.S. Presidential election” (2%)
Last month, the biggest concerns were: “Coronavirus” (58% of those polled), “Monetary policy impotence” (15%), “Outcome of 2020 U.S. Presidential election” (11%) and “Bond bubble pops” (6%).
In April, the “most crowded” trades deemed by managers were: “Long U.S. Treasuries” (31% of those polled), “Long cash” (20%), “Long U.S. dollar” (18%), “Long U.S. tech and growth stocks” (17%).
The top “most crowded” trades in March were: “Long U.S. Treasuries” (62% of those polled), “Long U.S. tech and growth stocks” (18%), “Long gold” (7%), and “Long IG corporate bonds” (7%).
An overall total of 207 panelists, with $597 billion in assets under management, participated in the BofA Global Research fund manager survey, taken April 1-7, 2020. “183 participants with $545bn AUM responded to the Global FMS questions and 83 participants with $162bn AUM responded to the Regional FMS questions.” BofA said.