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Mar 18, 2022

Equity allocations not yet at ‘close-your-eyes-and-buy levels,’ notes BofA survey

Cash levels rise to highest level since April 2020

Global investors are in a bearish mood amid low growth expectations and worries over stagflation, but have not yet cut equity allocations to recessionary levels, according to Bank of America’s (BofA) global fund manager survey for March.

The survey, which took place between March 4 and March 10 and polled 299 participants, finds cash levels have risen on average to 5.9 percent – the highest level since April 2020 in the early days of the Covid-19 pandemic.

Global growth expectations have fallen to their lowest level since the collapse of Lehman Brothers and the financial crisis of 2008, reports the survey. In addition, the majority of respondents expect inflation to be ‘permanent’ while six out of 10 are predicting stagflation – where rising prices are coupled with higher unemployment and weak growth.

The result is a drop in equity allocations, says BofA, but the pullback from stocks has not yet reached ‘capitulation’ level.

‘The recent disconnect between global growth and equity allocation is now being corrected by a significant decline in equity allocation,’ write BofA analysts. ‘That said, investors remain overweight stocks, not underweight – equity allocations are not at recessionary close-your-eyes-and-buy levels.’

Investors wary

The war in Ukraine has caused equity markets to fall sharply, tempting some investors to look for bargains. But amid tightening by central banks, lower growth estimates and the risk of further escalation in the conflict, many are wary of a further sell-off.

This week the US Federal Reserve lifted interest rates for the first time since December 2018, taking the target funds rate to 0.25 percent-0.5 percent. Meanwhile, the Bank of England implemented its third rate rise in four months.

The BofA survey was completed before this week’s rally in equity markets. At time of writing, the S&P 500 is up more than 5 percent over the last five days, notching its best weekly performance since November 2020.