–Majority Sees No US Recession in Coming 18 Months
–Chinese Economic Expectations See Record Low
By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors altered more pessimistic world growth expectations in September, with the majority now looking for a “soft landing” in the next 12 months, according to BofA Global Research’s monthly fund manager survey, released Tuesday.
The majority saw no U.S. recession in the coming 18 months, but U.S. election jitters weighed on overall sentiment and there were increased concerns about the Chinese economy.
This month, a net 79% of managers looked for a “soft landing” for the global economy in the coming year. This compared to a net 76% in August and a net 68% in July.
In September, a net 42% of portfolio managers looked for weaker economic growth in the coming year, versus a net 47% in August and a net 27% in July. This is in sharp contrast to April, where a net 11% of managers looked for stronger world growth.
Inflation concerns eased modestly this month, with a net 67% looking for lower CPI in the coming 12 months versus a net 76% with that view in August and a net 62% with that view in July.
A net 52% of investors maintain that there will be no recession in the U.S. economy in the next 18 months. The U.S. growth outlook modestly improved in September, with 51% expecting a weaker U.S. economy in the coming year, down from a net 56% in August.
“Macro pessimism was centered on China in the September FMS,” the survey said.
“China growth expectations fell to a record low, with net 18% expecting a weaker Chinese economy (most in 3-year history),” BofA Global said.
In terms of asset allocation, global investors gravitated towards cash, bonds and real estate.
In September, a net 11% of portfolio managers were overweight global equities, unchanged from August and compared to a net 33% overweight in July.
A net 11% of managers were overweight bonds this month, compared to a net 8% overweight in August and a net 9% underweight in July.
In September, commodity holdings stood at a net 11% underweight versus a net 7% underweight in August and a net 1% underweight in July.
“Allocation to commodities is the lowest since June 2017, after collapsing 24ppt in 4 months,” the survey said.
Allocation to real estate improved to a net 17% underweight, a five-month high. This compared to a net 28% underweight in August and a net 29% underweight in July.
Average cash balances edged down to 4.2% in September and compared to 4.3% in August and 4.1% in July. rose to 4.3% in August, compared to 4.1% in July and 4.0% in June. In contrast, allocation to cash rose to a net 11% overweight this month. This compared to a net 6% overweight in August and a net 1% underweight in July.
In equity allocation this month, the eurozone, Japan and UK saw inflows while the U.S. and emerging markets saw outflows.
Allocation to U.S. equities fell to a net 8% overweight from a net 11% overweight in August and compared to a net 16% overweight in July.
Asked about the prospects of a “sweep” i.e. the same party winning the White House and Congress,” a net 43% of those polled viewed the outcome as negative for the S&P 500. In contrast, last month, a net 33% viewed a “sweep” as positive for stocks.
This month, a net 8% of managers were overweight eurozone stocks, compared to a net 4% overweight in August and a net 10% overweight in July.
Allocation to global emerging markets (GEM) stood at a net 1% overweight in September. This compared to a net 3% overweight in August and a net 9% overweight in July.
This month, allocation to Japanese equities improved to a net 1% underweight from a net 9% underweight in August, while UK allocation jumped to a net 2% overweight from a net 8% underweight last month.
In September, the biggest “tail risks” feared by portfolio managers were” “U.S. recession (40% of those polled), “Geopolitical conflict” (19%), “Inflation accelerates” (18%), “Systemic credit event” (8%), “US election ‘sweep’” (6%) and “AI bubble” (5%).
In August, the biggest “tail risks” managers were: “US Recession” (39% of those polled), “Geopolitical conflict” (25%), “Higher Inflation” (12%), “Systemic credit event” (11%), “AI bubble” (7%), and “US election ‘sweep’ (4%).
In September, the top three “most crowded” trades were deemed “Long Magnificent 7 stocks” (46% of those polled), “Short China equities” (19%) and “Long Gold” (16%).
In August, the top three “most overcrowded” trades were “Long Magnificent Seven” (53% of those polled), “Short China equities” (15%) and “Short Japanese Yen” (12%)
Note: the term “Magnificent Seven” was coined by Bank of America’s chief investment strategist Michael Hartnett, referring to a basket of the seven major tech stocks: Apple, Microsoft, Amazon, NVIDIA, Alphabet, Tesla and Meta.
An overall total of 243 panelists, with $666 billion in assets under management, participated in the BofA Global Research fund manager survey, taken Sept 6 to Sept 12, 2024. “206 participants with $593bn AUM responded to the Global FMS questions and 138 participants with $284bn AUM responded to the Regional FMS questions,” BofA Global said.
Contact this reporter: vicki@macenews.com