By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors’ attitude towards risk worsened in March with negative sentiment driven by surging credit and counterparty risk, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
Shifting risk views led to a marked uptick in recession and growth concerns, but little change in the inflation outlook, the survey said.
BofA Global Research’s Financial Market Stability Risks Indicator, composed of seven risk indicators (Emerging Market Risk, Business Cycle Risk, Counterparty Risk, Geopolitical Risk, Credit Risk, Monetary Risk and Protectionist Risk), spiked to 7.7 this month, the highest since November 2022 and the “largest month-on-month increase since March 2022 (post-Russia/Ukraine War).”
“Credit Risk” and “Counterparty Risk” deteriorated the most in March, rising 30 percentage points and 25 percentage points to a net 75% and a net 46% above normal respectively on the month, the survey noted.
In March, a net 42% of fund managers said a recession was likely in the coming 12 months, compared to a net 24% in February and a net 51% in January. As background, in November 2022, a net 77% of those polled saw a recession as likely, the highest level since the Covid-19 high from April 2020.
A net 51% of those polled looked for weaker economic growth in the next year, compared to a net 35% in February and a net 50% in March. This month’s reading is still well down from the record high print of a net 79%, seen last July at the peak of global growth concerns.
On the inflation front, this month a net 84% of fund managers looked for lower global CPI in the coming 12 months, little changed from a net 83% in February and January and down from the record net 90% seen in December.
In terms of asset allocation, cash and bonds held more allure than equities on the month. Allocation to cash rose to a net 38% overweight in March, versus a net 36% overweight in February and a net 42% overweight in January and well down from the record net 62% overweight seen in September.
Average cash balances stood at 5.5% in March, compared to 5.2% in February and 5.3% in January. Average cash balances stood at 6.3% last October, which was the highest seen since April 2001.
In March, a net 27% of portfolio managers were underweight global equities versus a net 31% underweight in February and a net 33% underweight in January and compared to the record 52% underweight seen in September.
A net 1% of managers were overweight bonds, versus a net 4% underweight in February and a 1% overweight in January and compared to a net 10% overweight in December, which was the first net overweight in bonds since April 2009.
“Three out of the last four months have seen overweight bond allocation, after a 14-year streak of underweight allocation,” BofA Global Research said.
This month, commodity allocation stood at a net 14% overweight versus a net 15% overweight in February and a net 7% overweight in January.
On regional equity allocation, global investors favored eurozone, UK and Japanese assets at the expense of U.S. and emerging markets.
Allocation to U.S. stocks stood at a net 44% underweight in March, compared to a net 34% underweight in February and a net 39% underweight in January.
This month, a net 19% of managers were overweight eurozone stocks, compared to a net 9% overweight in February and a net 4% overweight in January. This compared to a net 42% underweight last September, which was a record underweight.
Global investors pared back global emerging market holdings after four straight months of increase. Allocation to GEM stood at a net 37% overweight in March versus a net 42% overweight in February and compared to a net 26% overweight in January.
Allocation to Japanese equities stood at a net 5% underweight in March compared to a net 13% underweight in February and UK allocation stood at a net 6% underweight compared to a net 11% underweight in February.
In March, the biggest “tail risks” feared by portfolio managers were: “Systemic credit event” (31% of those polled), “Inflation stays high” (25%), “Central banks stay hawkish” (15%), “Geopolitics worsen” (e.g. Russia/Ukraine, China/Taiwan) (14%), “Deep global recession” (11%) and “Stock market crash” (1%)
In February, the biggest “tail risks” were: “Inflation says high” (40% of those polled), “Geopolitics worsen (e.g. Russia/Ukraine, China/Taiwan)” 17%, “Deep global recession” (16%), “Central banks stay hawkish” (15%) and “Systemic credit event” (8%).
In March, the “most crowded” trades deemed by global managers were: “Long European Equities” (19% of those polled), “Long U.S. dollar (18%), “Long China equities” (15%), “Long ESG assets” (15%), “Long U.S. Treasuries” (12%) and “Long IG bonds” (10%).
In February, the “most crowded” trades were: “Long China equities” (21% of those polled), “Long IG bonds” (15%), “Long US dollar” (14%), “Long US Treasuries” (12%), “Long ESG assets” (10%), “Long oil” (8%) and “Long EM bonds” (5%).
An overall total of 244 panelists, with $621 billion in assets under management, participated in the BofA Global Research fund manager survey, taken March 10-16, 2023. “212 participants with $548bn AUM responded to the Global FMS questions and 140 participants with $257bn AUM responded to the Regional FMS questions,” BofA Global said.
Contact this reporter: vicki@macenews.com
Stories may appear first on the Mace News premium service.
For real-time email delivery contact tony@macenews.com.
Twitter headlines @macenewsmacro