BofA fund manager survey: Concern grows over financial market stability risk
30 MAR, 2023
By Constanza Ramos
Following recent events in the banking sector with the collapses of Silicon Valley Bank, Signature Bank, and Credit Suisse, concern has increased among the 212 fund managers who participated in Bank of America's (BofA) March Global Fund Manager Survey.
The Financial Market Stability Risk indicator jumped to 7.7 points due to rising credit/counterparty risk. This is the highest level since November 2022 and the largest month-on-month increase since March 2022, shortly after the Russian invasion of Ukraine.
Perception of credit (default) and counterparty risk deteriorated the most last month (combined risk perception highest since May 20). Counterparty risk perception jumped 25ppt MoM to net 46% above normal, the highest since May’20. While the perception of credit risk surged 30ppt MoM to net 75% above normal, the highest since Oct’22.
Likelihood of recession rising again for the first time since Nov'22, from net 24% in Feb'23 to net 42% this month, the biggest MoM increase since Jul'22. "As recessions concerns grow, a higher % of FMS investors want CFOs to improve balance sheets (55%)", states the report.
On the other hand, 88% of investors expect the 'stagflation' backdrop to linger into Q1’24, up from 83% last month. Expectations for stagflation have remained above 80% for 10 months in a row.
"FMS investors have never held such strong conviction about the economic outlook", said the organization.
“Systemic credit event” overtakes “inflation stays high” as the biggest tail risk
Doubts about the future of the banking sector were reflected in the results on the tail risk question, where 31% of managers surveyed said that a systemic credit event would be the main danger to the market. This represents an increase of 23 points from February
Macro View
March FMS showed a net 51% of investors expecting a weaker economy in the next 12 months, up 16ppt MoM, in the most significant monthly decline in optimism since the Mar’22 Ukraine invasion.
FMS investors expecting lower global CPI in the next 12 months increased MoM by 1ppt to 84%. Expectations for lower global CPI are down slightly from the record high of 90% in Dec’22.
Small caps versus large caps
Respondents said that large caps will be the winners of the global stock markets: net 42% of FMS investors think large caps will outperform small caps, up 26ppt MoM, the largest MoM increase on record (back to ’06). Expectations for large-cap outperformance relative to small caps are now the highest since Oct’22.
"Long European equities” are the most crowded trade
