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Are Investors Ready for Disinflation ?
Macro

Are Investors Ready for Disinflation ?

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15 NOV, 2023

By Johanna Zidani from RankiaPro Europe

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In the latest release of its monthly Fund Manager Survey, Bank of America provides a comprehensive snapshot of investor sentiment for the month of November 2023. The survey, conducted among fund managers, sheds light on prevailing views regarding inflation, interest rates, and global economic prospects.

Confidence in Predictions of Fading Inflation and Lower Rates

According to the survey, an overwhelming 91% of respondents anticipate a decline in European core inflation over the next year, with a substantial 76% projecting a similar trend on a global scale. This represents a record high in survey history. Surprisingly, hawkish central banks, which have long been a significant concern for investors, have slipped from the top spot for the first time since May. Geopolitical tensions now take precedence, with 31% of investors highlighting them as the primary tail-risk, up from 23% in the previous month. Additionally, a remarkable 74% of participants foresee short-term interest rates decreasing in the next twelve months, reaching a 15-year high. Furthermore, 43% predict a decline in 10-year bond yields, marking a 23-year high.

Balancing Optimism for Growth and Concerns Over Monetary Tightening

Despite the prevailing confidence in a soft landing for the global economy, concerns about the impact of monetary tightening persist among survey respondents. Notably, 29% believe European monetary policy is too restrictive, the highest level since 2011. Globally, a net 20% share this concern, the second-highest reading since 2008. This uncertainty is accompanied by worries about the impact of Fed tightening on the resilience of U.S. growth, with 50% of respondents expecting a slowdown next year. On the European front, 74% anticipate weakened growth in response to tight monetary policy.

Bullish on Equities, Cautious on Cyclicals

The survey reveals a bullish sentiment toward European equities, with 50% of investors foreseeing upside in the coming months. This optimism is attributed to expectations of declining bond yields and robust growth, a sentiment that has strengthened from 43% in the previous month. Moreover, 68% project upside over the next twelve months, a notable increase from 53% in the previous survey. However, doubts linger regarding cyclicals, as 44% of respondents anticipate downside for European cyclicals relative to defensives in the coming months, up from 40% last month. Despite concerns, European insurance, tech, and now energy remain among the top three consensus sector overweights, while autos, retail, and chemicals are deemed the least preferred sectors.

In conclusion, Bank of America's November 2023 Fund Manager Survey paints a nuanced picture of investor sentiment, capturing both optimism for growth and caution in the face of evolving economic dynamics and geopolitical uncertainties. As markets navigate these complexities, fund managers remain vigilant in their strategies, seeking to balance opportunities with potential risks.

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