Global equity allocation at two-year high: BofA Fund Manager Survey

Global asset managers are optimistic on global growth and are not predicting a recession for the first time since April 2022. Cash levels have dipped, too, with global equity allocation hitting a two-year high, BofA Global Research’s February Global Fund Manager Survey (FMS) said.

Improved macro-outlook and reduced risk perception drove investors to take down their cash levels to 4.2 per cent in February from 4.8 per cent a month ago, a drop of 55 basis points.

FMS investors are net 21 per cent overweight (OW) equities, the highest since February 2022. FMS investors have been OW equities for four months now, after an 18-month period of underweight allocation that ran from May 2022 through October 2023. Current allocation is 0.1 standard deviation below its long-term average.

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ASIA markets

Among Asian markets, investors prefer India and Taiwan (net 19 per cent overweight each) apart from Japan (56 per cent overweight) and are underweight on China (net 23 per cent), a new low, and Thailand (17 per cent). Two-thirds of participants believe a structural de-rating process of the China equity market is underway.

“Overall, investor outlook on China remained bleak, with a net 10 per cent seeing weaker Chinese economy, China real estate systematically in top three of the most likely source for global credit event and “short China equities” the second-most crowded trade,” the survey that polled 249 panellists said.

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Expectations for a strong macro and no recession keep investors in the “soft landing” camp at 65 per cent, with “hard landing” probability fading to just 11 per cent. Ninety per cent of BofA Global FMS investors expect lower short-term rates and 77 per cent expect lower inflation. A record 46 per cent of FMS investors say global fiscal policy is “too stimulative”.

Allocation to US stocks were the highest since November 2021, with investors the most bullish on the “Magnificent 7” technology stocks, which continued to be the most crowded trade. BofA Global FMS investors raised allocation to tech by 10 ppt MoM to net 36 per cent OW.

A net 13 per cent of FMS investors think growth will outperform value over the next 12 months, a reversal from last month’s net two per cent expecting value to outperform growth.

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