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Feb 18, 2019

BofAML reveals secular stagnation outlook among investors

Fund managers bearish on growth and inflation

The Bank of America Merrill Lynch (BofAML) fund manager survey for February reveals that investors are still downbeat on global growth.

Forty-six percent of investors expect global growth to weaken over the next 12 months, with ‘secular stagnation’ – cited last month – still the consensus view: 55 percent of investors surveyed are bearish on both the growth and inflation outlook for the global economy this year.

Investors’ worries about the credit cycle remain high, falling just 2 percentage points from last month. Forty-six percent of fund managers find corporate balance sheets to be overleveraged and 42 percent expect global profits to deteriorate in the next year – though this represents a 10 percentage-point improvement on last month’s decade-long low.

In turn, allocation to global equities has slumped 12 percentage points to just 6 percent overweight, the lowest level since September 2016.

‘Despite the recent rally, investor sentiment remains bearish,’ says Michael Hartnett, chief investment strategist at BofAML, in a statement. ‘Fund managers’ positioning is still a Q1 positive for risk assets.’

A trade war (29 percent) tops the list of biggest tail risks cited by investors for the ninth straight month, followed by a slowdown in China (21 percent) and a corporate credit crunch (12 percent).

Long emerging market (18 percent) is cited as the most crowded trade for the first time in the survey’s history. Long US dollar (17 percent) is bumped down to second on this month’s list, while long Faang (Facebook, Apple, Amazon, Netflix and Google) and Bat (Baidu, Alibaba and Tencent) falls to third at 14 percent.