The latest edition of the widely-followed Global Fund Manager Survey by Bank of America Securities has revealed that fund managers are least bullish since October 2020, with inflation and China being looked upon as the biggest “tail risks” in October.
According to the survey findings, 48 per cent of the fund managers stated that inflation was the biggest tail risk, followed by 23 per cent that stated China. Factors like the tapering of the stimulus programme by the US Federal Reserve, delta variant of COVID-19 and US fiscal policy also featured among the top tail risks in the survey.
The October FMS showed a 19-percentage points (ppt) month-on-month decline to net six per cent of FMS expecting weaker economy in next 12 months — the first time since April 2020, stated the survey report.
Incidentally, emerging markets have found a place only in the “max despair” quadrant, which implies that investors are very underweight on the emerging markets on a historical basis and want to cut exposure in the next 12 months. This is primarily attributed to concerns related to China.
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“FMS cash levels jump to a 12-month high (4.7 per cent) as global growth expectations turn negative 1st time since Apr ’20 on inflation & China pessimism,” stated the survey report.
Further, 15 per cent of the respondents believe that profit growth will slow down as the margin outlook is currently at its worst level since May 2020. “Corporate profit margin expectations continue to deteriorate… net 51 per cent of investors think margins will decrease down a massive 29 ppt past month,” stated the report.
Investors are now very overweight inflationary assets (i.e., commodities, banks) relative to history while at the same time very underweight assets that are vulnerable to interest rate hikes (i.e., bonds, EM, utilities), it added.
Interestingly, while overall equity allocation remained flat at a net 50 per cent, hedge fund net equity exposure dropped drastically to 26 per cent from last month’s 41 per cent.
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