–Investors Eye Higher Stock Prices, Steeper Yield Curve, Rising Inflation
by Vicki Schmelzer
NEW YORK (MaceNews) – Global investors at the start of 2021 anticipated stronger growth in the months ahead as the world recovers from COVID-19, according to the findings of BofA Global Research’s monthly fund manager survey, released Wednesday.
In line with the expected rebound in economic activity, these investors looked for higher stock prices, a steeper yield curve and rising inflation.
In January, a net 90% of managers looked for global growth to strengthen in the coming year, up from a net 89% in December and off only slightly from November, when a net 91% had that view, the highest growth expectations since March 2002. Back in April, as COVID-19 jitters were increasing, a net 2% of those polled looked for weaker global economic growth.
In addition, a net 59% of those polled looked for the global economy to get “a lot stronger,” up from a net 56% in December, and compared to a net 44% with that view in November, the survey said.
A record net 83% of managers looked for a steeper yield curve in 2021. This is “higher than 2008 Lehman bankruptcy, 2013 Fed Taper Tantrum and 2016 U.S. Election,” the survey said.
Accordingly, inflation expectations rose more markedly in January, with a record net 92% of fund managers looking for higher global CPI in the next 12 months. This compared to a net 79% in December and a net 75% in November.
Average cash balances stood at 3.9% this month, down from 4.0% in December and 4.1% in November. As a point of comparison, in April 2020 cash balances stood at 5.9%, which was the highest level since the 9/11 terrorist attack.
Allocation to cash was unchanged at a net 1% underweight in January, still the lowest allocation since May 2013 and compared to a net 7% overweight in November. April 2020’s cash allocation, at a net 54% overweight, was the highest since October 2008 and the second highest reading in the survey history.
On overall asset allocation, in January, a net 53% of those polled were overweight global equities, the highest since January 2018. This compared to a net 51% overweight in December and a net 46% overweight in November. As background, April 2020 saw fund managers with a net 27% underweight, which was the lowest allocation since March 2009.
This month, a net 59% of portfolio managers were underweight bonds, the lowest bond holdings since March 2018. This compared to a net 56% underweight in December and a net 50% underweight in November.
Global investor allocation to commodities rose to a net 19% overweight, the highest since April 2011. This up from a net 18% overweight in December and a net 7% overweight in November.
On regional equity asset allocation, global investors continued to reallocate stock holdings out of the U.S. into other world markets.
Allocation to U.S. stocks stood at a net 4% overweight in January, down from a net 15% overweight in December and a net 23% overweight in November.
In January, a net 29% of managers were overweight eurozone stocks, up from a net 25% in December and a net 18% in November.
At the start of the year, fund managers had a record net 62% overweight to global emerging market equities. This compared to a net 55% overweight to the region in December and a net 36% overweight in November. Emerging markets remained the “#1 one most preferred region” and two-thirds of those polled look for EM to be the “best performing asset in 2021,” the survey said.
This month, portfolio managers had a net 6% overweight to Japanese equities, compared to a net 4% overweight in December and a net 1% underweight in November.
UK equity allocations showed managers with a net 15% underweight in January, versus a net 18% underweight in December and a net 33% underweight in November.
While COVID-19 uncertainty remained the top tail risk for the eleventh straight month, there was also increased concern about stock and bond market effects from an eventual unwind of monetary policy easing.
In January, the biggest “tail risks” feared by portfolio managers were: “COVID-19 rollout” (30% of those polled), “A ‘tantrum’ in the bond market” (29%), “A bubble on Wall St” (18%) and “Inflation” (14%).
Last month, the biggest “tail risks” were “COVID-19 second wave” (30% of those polled), “Inflation” (24%), “Fiscal policy drag” (18%), “Credit Event” (12%), and “U.S.-China trade war” (7.0%)
In January, the top “most crowded” trades deemed by managers were: “Long Bitcoin” (36% of those polled), “Long Tech” (31%), “Short U.S. dollar” (23%) and “Long Corporate Bonds” (4%).
In December, the top “most crowded” trades were: “Long U.S. tech” (52% of those polled), “Short U.S. dollar” (17%), “Long Bitcoin” (15%), “Long Corporate Bonds” (11%) and “Long Gold” (3%).
An overall total of 217 panelists, with $596 billion in assets under management, participated in the BofA Global Research fund manager survey, taken January 8-14, 2021. “194 participants with $561bn AUM responded to the Global FMS questions and 84 participants with $168bn AUM responded to the Regional FMS questions,” BofA Global said.
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Contact this reporter: vicki@macenews.com
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