Investors have grown more confident that the global economy will avoid a recession next year despite signs of stalling growth, according to the latest fund manager survey from Bank of America (BofA).
The poll of 225 investors, managing a collective $554 bn in assets, finds that 74 percent predict either a ‘soft’ or ‘no’ landing for the global economy over the next 12 months. Responses were collected between November 3 and November 9.
Highlighting the improving mood, the proportion of respondents expecting a ‘hard’ landing has fallen from 30 percent in the October survey to 21 percent this month. Cash levels have also dropped sharply, from 5.3 percent to 4.7 percent month over month.
In terms of asset allocation, investors are now overweight equities for the first time since April 2022, says BofA, a fact it puts down to ‘a stable macro outlook and [a] much more optimistic view on rates’.
Overall investor sentiment, however, remains bearish, just not excessively so, write BofA analysts: ‘Our broadest measure of sentiment, based on cash positions, equity allocation and economic growth expectations, rose to 2.6 from 1.7, the largest monthly rise since November 2021.’
Many investors believe central banks will not need to raise interest rates further – a fact that has spurred equity market gains in recent weeks – but are waiting for data to confirm cooling economic conditions. This week’s US consumer price index (CPI) reading, due today, will prove key to guiding investor expectations.
‘A hot CPI report may call into question investors’ belief the Fed is done hiking rates,’ Bill Merz, US Bank’s head of capital markets research, told CNBC. But ‘a figure coming in lower than expected could solidify those expectations for now’.
BofA’s survey underlines the belief that rates will not rise further, with 76 percent of respondents saying the US Federal Reserve has finished its cycle of increases, a jump from 60 percent last month.
While the base case for investors is a soft landing next year, fund managers would still like corporate executives to prioritize improving their balance sheets over boosting capital spending or returning cash to shareholders, adds BofA. ‘Strong focus on balance sheet improvement is often associated with elevated recession risk,’ notes the report.