— China Growth Outlook Improves
By Vicki Schmelzer
NEW YORK (MaceNews) – Global investors cut allocations to US equities and were less downbeat about global growth prospects than in prior months at the start of 2023, according to the findings of BofA Global Research’s monthly fund manager survey, released Tuesday.
Allocation to U.S. stocks stood at a net 39% underweight in January, the largest month-on-month underweight change on record and the largest net underweight since October 2005. This compared to a net 12% underweight in December and a net 7% underweight in November.
In January, a net 51% of managers said a recession was likely in the coming 12 months. This was down from a net 68% in December and more importantly, down from a net 77% in November, which was the highest level since the COVID-19 high from April 2020.
A net 50% of those polled looked for weaker overall economic growth in the next year, down from a net 69% in December and a net 73% in November. This compared to the record high print of 79%, seen last July at the peak of global growth concerns.
While growth sentiment is still bearish, “this is actually the most optimistic FMS investors have been on global growth prospects in the past year,” the survey said.
In part, this optimism was driven by a shift in China’s growth outlook, with full reopening of the economy expected by the end 2023.
“The net % of FMS investors expecting a stronger Chinese economy rose to 91% in Jan’23, up from 75% in Dec’22, 13% in Nov’22 and…0% in Aug’22,” BofA Global noted.
On the inflation front, a net 83% of fund managers looked for lower global CPI in the coming 12 months, down from the record net 90% seen in December and compared to a net 85% in November.
In terms of asset allocation, global investors tweaked holdings in early January.
Allocation to cash stood at a net 42% overweight in January, compared to a net 38% overweight in December and a net 51% overweight in November. This compared to the record net 62% overweight seen in September.
Average cash balances fell to 5.3% this month. This compared to 5.9% in December and 6.2% in November and 6.3% in October, which was the highest seen since April 2001.
“Investors are still running high cash levels (4.7% average since 1999), but the combination of peak rates + peak recession fears is causing cash allocation to fall,” the survey said.
In January, a net 33% of portfolio managers were underweight global equities, versus a net 22% underweight in December and a net 34% underweight in November. This compared to the record 52% underweight seen in September.
After a return to overweight in December, investors pared back bond holdings.
A net 1% of managers were overweight bonds in January, down from a net 10% overweight in December and a net 19% underweight in November. Last month’s reading was the first net overweight in bonds since April 2009.
Nearly two-thirds of those polled at the start of the year looked for 10-year U.S. Treasury yields to be in the 3.0%-4.0% range by January 2024.
This month, commodity allocation declined to a net 7% overweight from a net 9% overweight in December and a net 13% overweight in November.
On regional equity allocation, global investors continued to exit U.S. holdings while increasing assets in other regions.
Allocation to U.S. stocks stood at a net 39% underweight in January, the largest month-on month underweight change on record. This compared to a net 12% underweight in December and a net 7% underweight in November.
For the S&P 500, 37% of those polled saw the index above 4,000 at year-end and 57% saw the index below 4,000 in the coming year, the survey said
This month a net 4% of managers were overweight eurozone stocks, compared to a net 10% underweight in December and a net 23% underweight in November. This compared to a net 42% underweight in September, which was a record underweight.
Allocation to global emerging markets surged again this month, to a net 26% overweight. This is up from a net 13% overweight in December and compared to a net 9% underweight in November
Allocation to Japanese equities saw a net 5% underweight in December compared to a net 6% underweight in December and UK allocation stood at a net 15% underweight compared to a net 18% underweight in November.
In January, the biggest “tail risks” feared by portfolio managers were: “Inflation stays high” (34% of those polled), “Deep global recession” (20%), “Central banks stay hawkish” (19%), “Geopolitics worsen (e.g. Russia/Ukraine, China/Taiwan)” (13%), “Systemic credit event” (9%) and “Covid resurgence” (2%)
In December, the biggest “tail risks” feared were: “Inflation stays high” (37% of those polled), “Deep global recession” (20%), “Central banks stay hawkish” (16%), “Geopolitics worsen (e.g., Russia/Ukraine, China/Taiwan)” (12%) and “Systemic credit event” (12%).
“Geopolitical risks linger as 50% FMS investors do not expect the military conflict between Russia and Ukraine to end in ’23,” BofA Global said.
“Conversely, 35% expect a peace agreement this year,” the survey said.
In January, the “most crowded” trades deemed by global managers were: “Long US dollar (32% of those polled), “Long ESG assets” (17%), “Long China equities” (12%), “Long oil” (9%), “Long US Treasuries” (9%) and “Long IG Bonds” (8%)
Last month, the “most crowded” trades deemed by global managers were: “Long US dollar” (37% of those polled), “Short China equities” (16%), “Long Oil” (10%), “Long ESG assets” (10%) and “Long T-bills” (7%).
An overall total of 286 panelists, with $772 billion in assets under management, participated in the BofA Global Research fund manager survey, taken January 6-12, 2023. “253 participants with $710bn AUM responded to the Global FMS questions and 156 participants with $298bn 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