Investors turn bearish, with growth prospects at lowest level since April 2020

Just 13 percent of respondents to the September fund manager survey from Bank of America (BofA) expect a stronger economy in the coming months.

The figure marks the lowest point since April 2020 in the early days of the Covid-19 pandemic and is a huge slump from the 75 percent predicting growth as recently as June, or the bullish 91 percent peak of March 2021.

Despite the negative outlook, however, just 6 percent expect a global recession. Anecdotally, researchers say the Delta variant of the virus is quoted as the reason for the growing pessimism, though it also notes that Covid-19 as a tail risk has dropped notably in recent months.

This month’s survey findings come from 258 panelists with $839 bn in assets under management. Researchers note that while ‘global growth expectations have historically led the fund manager survey investor equity allocation’, equity allocation ‘has lagged this cycle’.

‘Growth expectations are saying equity allocations should fall but risk taking is telling the story that investors are ignoring the macro,’ write a team of strategists led by Michael Hartnett in a note to clients. In fact, equity allocations remain overwhelmingly bullish, though allocations peaked in April at a net 62 percent. The September survey has equity allocations at a net 50 percent. This is far above the 20-year average of 29 percent.

Interestingly, the survey notes that 45 percent of respondents have removed equity market protections designed to shield portfolios in the case of a sharp drop in asset values in the next three months. BofA says this is the lowest figure since January 2018. It also describes liquidity conditions as being ‘ominously viewed’ as the best since July 2007 – just before the global financial crisis.

‘A rare disconnect is growing between asset prices and fundamentals,’ write Hartnett and his team.

Eighty-four percent of investors expect the US to begin tapering its stimulus measures by the end of the year, though expectations for the first US rate hike have been pushed from November next year to February 2023. Almost 60 percent describe monetary policy as ‘too stimulative’ – the highest proportion since May 2011.

When asked what investors would like companies to do with their cash, BofA notes that while ‘return cash to shareholders’ has ‘slowly ticked up’ and now stands at 17 percent, it remains the minority choice. ‘Increase capital spend’ is the top choice at 50 percent followed by ‘improve balance sheet’ at 30 percent.