–Growth Expectations Plunge, Cash Holdings Rise, Record Commodity Allocation
By Vicki Schmelzer
NEW YORK (MaceNews) – Russia’s invasion of Ukraine sparked a wave of bearishness and a big shift out of equities among global investors in March, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
Uncertainty about how the situation will unfold led to a plunge in global growth expectations, a rise in cash holdings to “recessionary” levels and a record commodity allocation.
In March, the biggest “tail risks” feared by portfolio managers were: “Russia-Ukraine conflict (44% of those polled), “Global recession” (21%), “Inflation” (18%), “Hawkish central bank rate hikes” (9%), “Asset bubbles” (5%), “COVID-19” (4%) and “China credit event” (1%).
In February, the biggest “tail risks” were: “Hawkish central bank rate hikes (41% of those polled), “Inflation” (23%), “Asset bubbles” (11%), “Global recession (8%), “Russia-Ukraine conflict” (7%), “COVID-19” (4%), and “LTCM-like credit event” (3%).
Whereas last month, fund managers feared that anticipated world central bank tightening would have a dampening effect on growth, in March, the focus turned to Russia’s invasion of Ukraine and possible negative economic ramifications.
In March, a net 64% of fund managers looked for weaker economic growth in the coming 12 months, the worst outlook since July 2008, versus a net 20% looking for weaker growth in February and a net 1% with that view in January.
The latest run up in commodity prices led to a sharp rise in inflation concerns.
A net 5% of fund managers looked for lower global CPI in the coming 12 months, the lowest since October 2021. This is compared to a net 56% with that view in February, which was the most since January 2009.
Overall uncertainty led to a marked allocation shift out of global equities into bonds and commodities.
A net 4% of portfolio managers were overweight global equities in March, down from a net 31% overweight in February and a net 55% overweight in January.
This month, a net 56% of managers were underweight bonds, compared to a net 72% underweight in February and a net 77% underweight in January.
Average cash balances rose to 5.9% in March from 5.3% in February and 5.0% in January. This month’s reading “triggers FMS Cash Rule tactical ‘Buy’ signal,” which would suggest U.S. equity returns of +1.3%, +4.0% and +6.5% on a one-month, three-month, six-month basis respectively, BoA Global noted.
Allocation to cash rose to a net 46% overweight this month, compared to a net 38% overweight in February and a net 33% overweight in January.
“Cash levels are recessionary. Economic growth and profit expectations are recessionary,” BofA Global said.
“But because inflation expectations are not recessionary, expectations for short-term interest rates are for hikes, not cuts,” the survey said.
In terms of Fed hikes, global investors on average now expect 4.4 Fed rate hikes in 2022, up from three Fed rate hikes in the January survey. BoA Global added.
Global investor allocation to commodities rose to a record net 33% in March, versus the prior record of a net 31% overweight in February and January.
On regional equity asset allocation, global investors made a beeline into U.S. stocks as they exited other regions.
Allocation to U.S. stocks rose to a net 12% overweight in March, compared to a net 15% underweight in February and a net 5% overweight in January.
Investors saw the so-called “Fed-put” for the S&P 500 at 3,636 or 12.9% lower than Monday’s S&P 500 close of 4,173.11. Under this “Fed-put” notion, the Federal Reserve would purportedly take policy easing action to prevent further stock losses if this downside support was broken. Last month, the “Fed-put” was seen at 3,698.
This month, a net 18% of managers were underweight eurozone stocks, a sharp decline from the net 30% overweight seen in February and the net 35% overweight seen in January.
Fund managers had a net 1% overweight exposure to global emerging markets (GEM) in March, compared to a net 11% overweight in February and a net 2% underweight in January.
Allocation to Japanese equities fell to a net 8% underweight this month, from a net 2% underweight in February, while UK equity allocation stood at a net 13% underweight versus a net 4% underweight in February.
In March, fund managers were again asked to rate the top potential risks to financial market stability. A net 95% of those polled said “Geopolitical Risk,” a net 81% said “Monetary Risk” and a net 61% said “Business Cycle Risk.”
Last month, a net 83% of fund managers said “Monetary Risk,” a net 78% said “Geopolitical Risk” and a net 36% said “Business Cycle Risk.”
In March, the “most crowded” trades deemed by global managers were: “Long Oil/Commodities” (42% of those polled), “Long Tech Stocks” (17%), “Long ESG” (12%), “Short U.S. Treasuries (7%) and “Long Bitcoin” (7%).
In February, the “most crowded” trades were: “Long Tech Stocks” (28% of those polled), “Short US Treasuries” (18%), “Long ESG” (17%), “Long Commodities” (15%) and “Long Bitcoin” (10%).
An overall total of 341 panelists, with $1.0 trillion in assets under management, participated in the BofA Global Research fund manager survey, taken March 4-10, 2022. “299 participants with $1.0tn AUM responded to the Global FMS questions and 152 participants with $368bn AUM responded to the Regional FMS questions,” BofA Global said.