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Jan 17, 2023

Investors reduce cash holdings as global conditions ease, reports Bank of America

China reopening boosts market sentiment, finds monthly survey

The mood among investors has lightened considerably since the fourth quarter of 2022 but they remain bearish about the global economy, according to the latest fund manager survey from Bank of America (BofA).

The poll, which took place between January 6 and January 12 and includes responses from 253 participants, finds cash holdings have had their biggest fall since June 2020, dropping from 5.9 percent in December to 5.3 percent this month.

Trading screen
Photo: Nicholas Cappello

Investors are putting cash to work amid signs of peak interest rates and peak recession fears, says BofA, but cash levels remain high: the average since 1999 is 4.7 percent. 

In another sign of easing concerns, the net percentage of respondents predicting a recession over the next 12 months has fallen from 77 percent last month to 68 percent in January. BofA analysts note that ‘prior peaks in recession fear were big turning points in asset prices’.

Improving picture

Following a tough year for both stocks and bonds, investors entered 2023 expecting more pain with inflation still high, China experiencing a huge Covid wave and central banks set to raise interest rates further.

While many concerns remain, the outlook for markets has improved following China’s shift toward a full reopening and better-than-expected economic data. Last week, Barclays increased its forecast for global GDP in 2023 by 0.5 percentage points to 2.2 percent, with the change ‘largely driven’ by greater hopes for China.

Investors responding to the BofA survey are feeling bullish about China: the net percentage expecting a stronger Chinese economy over the next year has risen to 91 percent this month, up from 75 percent in December and 0 percent as recently as August 2022.

‘The bullish sentiment on the China growth outlook is driven by belief in a full reopening of the Chinese economy in 2023,’ write the report authors. Last month, just 74 percent of BofA survey respondents expected a full China reopening this year; the figure now is 91 percent.