Bank of America: Recession fund managers fear ‘less bearish’ than 2022, but faith in US stocks collapses

The start of the new year appeared to show an improvement in investor sentiment, with stocks falling on Wall Street and in Europe. enjoyed the rallies in the first trading weeks of the new year.

However, some fears remain due to corporate income uncertainty and the economy, which led to more muted trading in recent days.

But as institutional investors began to feel more optimistic about the economy, their allocation of funds to US stocks collapsed, Bank of America said on Tuesday.

In its latest installment of the Global Fund Manager Survey, BofA surveyed 253 individuals who collectively manage assets worth $710 billion.

The survey, conducted between Jan. 6 and Jan. 12, asked the fund managers to evaluate how they expect the economy to play in the near future-and how they are positioning their portfolios to cope with any economic and geopolitical storm.

BofA analysts found that while fund managers remain bearish, they are “much less bearish” than in the last quarter of 2022.

Thanks to optimism surrounding China’s reopening after a painstakingly designed strategy to eradicate COVID, fears of a recession among leading investors hit a six-month low, the survey revealed. .

Fund managers’ expectations of China’s growth rose to a 17-year high, with 91% of respondents expecting a “full opening” of the world’s second-largest economy last year. 2023.

Optimism in China has fueled fears of a recession, with only 51% of fund managers saying they expect a weaker economy in the next 12 months. Recession fears peaked in November when 77% of fund managers told BofA they expected a recession in the next year.

The bank’s strategists said in their note on the results of the survey that the first peaks of fear of recession marked a turning point in asset prices.

Meanwhile, optimism over global economic growth reached a one-year high. Only 20% of fund managers say they see a deep global recession as the biggest tail risk in their portfolio, with persistently high inflation named the number one tail risk by 34% of those survey respondents.

Fund managers are pulling back from US equities

Last year, there was economic concern investors hoarding money at the highest rate since 9/11—but according to the latest BofA survey, fund managers’ cash allocations saw the biggest decline between December and January since mid-2020.

Despite allocating less to their cash portfolios than at other points last year, however, fund managers remain overweight cash and bonds, the poll found, and still underweight weight of world stocks.

When they invest in stocks, they tend to emerging markets, eurozone stocks, and shares of companies in the utilities and industrial sectors.

Money was pulled into US stocks, with the allocation of funds to American-listed companies falling to the lowest since October 2005.

“The allocation to US equities collapsed in January, with investors underweight by 39%, [the] most since October 2005 (52%),” BofA analysts said in a report on the survey results.

“The magnitude of the month-on-month increase in net underweight is very impressive,” they added. “Jan. 2023 saw the largest month-on-month increase in net underweight in US equities on record.

Fund managers also pulled back from health care and technology stocks, according to BofA’s January survey.

Taking a longer-term view, investors’ year-end price targets for the S&P 500 averaged 3,900 points, according to BofA data. than the level at which it was trading on Tuesday morning.

Bitcoin, which, like most cryptocurrencies, suffered a terrible 2022has been given an average price target of $15,500 for 2023. The digital asset traded at around $21,150 on Tuesday.

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