Worried about a possible global recession, “super bearish” fund managers are swiftly exiting equities and taking refuge in cash, reports an article in CityWireUSA that cites the latest Bank of America Global Fund Manager Survey. The survey shows managers who are growing more and more concerned about a recession, and have increased cash allocations from 5.7% to 6.1%. Meanwhile, 60% of investors are taking “lower-than-normal” risks—a record high.
Both stocks and bonds are taking a beating from financial policy tightening around the world, and investors have been getting rid of both asset classes, leaving managers -52% underweight in stock allocations. The most underweight shares were in European stocks, as investors contend with a prolonged energy crisis due to the Ukraine war, according to the article. Meanwhile, investors were flocking to “defensive” companies, such as the healthcare sector, and going long on the U.S. dollar which has strengthened beneath the Fed’s rate hikes.
68% of the survey’s respondents believe a recession is likely, and 72% of managers believe the global economy will be weaker in 2023. That includes China, which has seen 8.8% GDP growth since 1990, but where 70% of survey respondents expect growth to fall to 4% or less. And 92% of investors expect corporate profits to shrink in the next 12 months.
However, the survey wasn’t all bad news. According to CityWireUSA, inflation will drop as a result of a weaker economy, with 79% of managers expecting that the cost of living will fall from its 4-decade high. And while inflation is top of mind for every manager, a slower economy could soften the hawkish policies that central banks around the world are implementing. In the U.S., the Fed will likely end their rate hikes by the second quarter of 2023, many investors believe, bringing them to a peak of 4% to 4.25%.