In the ever-evolving landscape of global finance, insights from fund managers often serve as a barometer for investor sentiment and market trends. Bank of America’s September Global Fund Manager Survey, conducted between September 1st and 7th, 2023, provides a fascinating glimpse into the minds of 258 panelists overseeing a collective $678 billion in assets under management (AUM).
The pendulum swings: from extreme bearishness to cautious optimism
One of the most striking takeaways from the survey is the notable shift in investor sentiment. While it may not yet be time to declare outright bullishness, the survey reveals a marked departure from the extreme bearishness observed in previous months. Global equity allocation has hit a 17-month high, suggesting a growing appetite for risk.
However, caution still prevails. Fund managers are holding an increased cash level, with FMS cash levels up to 4.9%. This cautious stance indicates that investors are not willing to fully embrace risk just yet.
Record jump in US, record fall in EM Equities
The survey highlights a dramatic shift in relative exposure among fund managers. There has been a record jump in allocation to the US market, underlining the attractiveness of American equities. In stark contrast, emerging market (EM) equities have witnessed a record fall, primarily attributed to a slump in China’s growth optimism.
China growth optimism hits “Lockdown Lows”
Perhaps one of the most significant findings is the plummeting China growth expectations, which have dipped to “lockdown lows.” In February 2023, a robust 78% of respondents expected a stronger Chinese economy. However, this optimism has evaporated entirely, with 0% anticipated growth in September 2023. Notably, this sentiment is even lower than it was in September 2022, right before China’s reopening.
A spectrum of economic outcomes
The survey also sheds light on diverse views regarding the global economy’s trajectory. While 64% anticipate a “soft” landing, 11% predict a “no” landing. In contrast, 21% of respondents expect a “hard” landing, while nearly 30% believe that a recession is unlikely in the next 18 months.
Rate cuts in focus
There is strong conviction among fund managers that the Federal Reserve will cut rates, with a net 69% expecting lower short-term rates—a sentiment not seen since December 2008. However, it’s worth noting that a similar percentage also expects lower global inflation, a decrease from the previous month. Persistent inflation remains a top concern, and central banks maintaining a hawkish stance is seen as the primary “tail risk.“
Shifting views on fed hikes
The survey captures a shift in sentiment regarding the Federal Reserve’s future actions. While 60% now believe the Fed is “done” hiking rates, this is a significant change from the 47% who held this view in August and the mere 9% who did so in July. This shift in perception underscores the evolving narrative around the central bank’s monetary policy.
Looking ahead: when will the Fed cut rates?
Lastly, fund managers anticipate the first Fed rate cut to occur between April and December 2024, with 38% pointing to the latter half of 2024 and 36% eyeing the second quarter. These expectations provide a glimpse into the timeline fund managers envision for potential monetary policy shifts.
