Most fund managers optimistic about global growth, downgrade recession risk: survey

London

THE majority of fund managers are optimistic about emerging and other equities and economies, according to the latest Bank of America Merrill Lynch (BofAML) survey.

The survey of 249 global panellists with US$739 billion (S$998 billion) of assets under management, however, took place in January prior to news of the Wuhan virus outbreak. Fund managers today would likely regard this as a risk to China and possibly other nations.

The survey shows that fund managers are not at extreme bullish levels about equities, but it contrasts with their general pessimism at the end of 2018 and during the middle of last year.

A net 36 per cent of pension, other fund managers and hedge funds expect global growth to improve over the next 12 months. This is a 7 percentage point increase on December and is the most optimistic level since February 2018.

In contrast to mid-2019 worries that there would be a global economic downturn, the majority of fund managers have downgraded the risk of recession.

The renewed confidence encouraged the asset managers to raise their equity allocations to a net 32 per cent overweight - the highest in 17 months - compared with 12 per cent net underweight positions last August.

The last time there was such a turnaround in positions was in 2011 when the lengthy global bull market was in its infancy. The investors believe that the S&P 500 could peak around 3,400 points compared with general pessimism in December 2018.

At that time, the market had slid down to its lowest level of that year and the majority of investors were bearish. Indeed some hedge fund managers then believed that the slide was the first stage of a bear market.

Since then, the market has risen substantially. Despite the optimism, however, Michael Hartnett, BofAML chief investment strategist, does not believe that the current fund manager positions are a contrary indicator. He maintains that "investors are bullish but not euphoric".

Cash levels of the funds are around their low levels of 4.2 per cent, but not as low Mr Hartnett's 3.5 per cent contrary indicator.

Fund managers believe that the main risks are the US presidential election, followed by the ongoing trade tensions between the US and China. There is some fear that a rise in inflation and interest rates that would cause lofty bond prices and potentially equity prices to fall.

Fund managers are mostly bullish on Asian and other emerging markets and have downgraded US equities. The US dollar is regarded as overvalued.

Key points of the BofA Global Fund Manager Survey include:

The allocation to Asian and other emerging market equities rose 7 percentage points to 32 per cent overweight. This is the most preferred region among FMS investors followed by Europe. The UK, however, remains underweight because of Brexit uncertainty but more money has begun to flow into the country since the overwhelming Conservative victory.