–Seventy-six percent of managers convinced Fed rate hike cycle over
–Geopolitics become number one “tail risk”
by Vicki Schmelzer
NEW YORK (MaceNews) – Global investors prepared for lower yields in November, with cash levels falling and allocation to stocks and bonds on the rise, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
“The conviction of ‘peak Fed’ is now the strongest since FMS investors began providing their view on timing of end of rate hiking cycle,” the survey said.
Seventy-six percent of those polled in November were convinced that the Fed has finished its hiking cycle, up from 60% in October and the highest since the question was first asked in May 2023, BofA Global said. The survey was conducted prior to Tuesday’s US consumer price report, which showed lower than expected inflation.
Key market views about inflation and growth however were mixed this month.
In November, a net 76% of fund managers looked for lower global CPI in the next 12 months, compared to a net 70% in October and a net 69% in September. These levels compare to the record high of 90% looking for lower inflation back in December 2022.
This month, a net 57% of those polled looked for weaker economic growth in the coming year, compared to a net 50% in October and a net 53% in September. These levels compare to July 2022, when at the peak of global growth concerns, a net 79%, a record high, were looking for weaker growth.
In November, a net 74% of managers looked for a “soft landing” for the global economy, compared to a net 64% in October. A net 21% looked for a “hard landing” this month, compared to a net 30% in October.
In light of these shifting views, “94% of FMS investors expect bonds, stocks and commodities to outperform cash next year,” the survey said.
Indeed, in November, cash levels fell while allocation to stock and bonds increased and commodities decreased.
Average cash balances stood at 4.7% in November, down from 5.3% in October and compared to 4.9% in September.
The sharp decline in average cash balances, below 5.0%, reversed BofA Global FMS Cash Rule’s “buy” signal for stocks after only once month, the survey noted.
Last month, the “buy signal” being triggered suggested a 7% rise in S&P 500 in the six-month period to follow.
Allocation to cash fell to a net 18% overweight in November, versus a net 29% overweight in October and a net 27% overweight in September.
In November, a net 2% of portfolio managers were overweight global equities, compared to a net 4% underweight in October and a net 3% underweight in September. This is the first time since April 2022 that managers held an overweight equity position, the survey noted.
This month, a net 19% of managers were overweight bonds, compared to a net 1% overweight in October and a net 1% underweight in September.
“This is the highest allocation to bonds since Mar’90,” BofA Global said.
Commodity allocation held at a net 3% overweight in November, compared to a net 8% overweight in October and a net 2% overweight in September.
On equity allocation, most regions, other than the U.S and Japan, saw trimming of stock holdings in November.
Allocation to U.S. stocks rose to a net 11% overweight this month, up from a net 6% overweight in October and compared to a net 7% overweight in September.
This month, a net 23% of managers were underweight eurozone stocks compared to a net 19% underweight in October and a net 10% underweight in September.
Allocation to global emerging markets (GEM) fell to a net 4% underweight in November from a net 3% underweight in October and compared to a net 9% overweight in September.
“In the last three months, EM equity allocation has declined 38ppt, the largest three-month decline since Jul’18,” BofA Global said.
Allocation to Japanese equities stood at a 23% overweight in November, up from a net 16% overweight in October and UK allocation stood at a net 30% underweight compared to a net 25% underweight last month.
In November, the biggest “tail risks” feared by portfolio managers were “Geopolitics worsen” (31% of those polled), “High inflation keeps central banks hawkish” (25%), “Global recession/hard landing” (23%), “Systemic credit event (global/corporate)” (14%), “AI/tech bubble” (4%) and China real estate bust (0%).
In October, the biggest “tail risks” were: “High inflation keeps central banks hawkish” (31% of those polled), “Geopolitics worsen” (23%), “Global recession/hard landing” (21%), “Systemic credit event” (government/corporate) (15%), “AI/tech bubble” (4%), and “China real estate bust” (3%).
In November, the “most crowded” trades deemed by global managers were: “Long Big Tech” (38% of those polled), “Short China equities” (22%), “Long T-bills” (11%), “Short 30-year Treasury” (7%), “Short REITs” (6%) and “Long Japan equities” (6%).
In October, the “most crowded” trades were: “Long Big Tech” (37% of those polled), “Short China equities” (21%), “Long Japan equities” (11%), “Long T-bills” (10%), “Short REITS” (7%) and “Short US dollar” (3%).
An overall total of 265 panelists, with $632 billion in assets under management, participated in the BofA Global Research fund manager survey, taken November 3 to November 9, 2023. “225 participants with $553bn AUM responded to the Global FMS questions and 151 participants with $268bn AUM responded to the Regional FMS questions,” BofA Global said.
Contact this reporter: vicki@macenews.com
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