With a vaccine coming into the picture this month and the wrinkle of US Elections ironed out, fund managers across the globe are now turning bullish.
Holding a contrarian view, some do believe that the cleap valuations for PSU stock and governments intent could soon act as a catalyst for the next leg-up move for these state-owned firms.
With a vaccine coming into the picture this month and the wrinkle of US Elections ironed out, fund managers across the globe are now turning bullish. Bank of America’s Global Fund Manager Survey (FMS) for November is the most bullish one so far in 2020. Growth expectations are at a 20-year high and cash levels have dropped to pre-coronavirus levels. Although the pandemic still remains the biggest tail risk but a credible vaccine is now expected to be out earlier than before.
The FMS shows that more investors prefer allocating funds to emerging markets now. “FMS conviction in Emerging Markets on the rise. Net 36% of investors are overweight EM equity and the largest proportion ever saying EM currencies are undervalued,” BoFA said. There is a 24% on-month jump in those who prefer emerging markets, this is the largest on-month increase since April 2017. Emerging markets are now the most preferred region among global fund managers. The improvement comes at the expense of the Eurozone, Japan, and the UK where allocation has decreased.
Among other favoured ideas are small caps where on-month basis there has been a huge jump in exposure. Other than EMs and small caps, value stocks are being picked over growth and exposure to banks has increased. Net 21% of investors now think that smallcaps will outperform large caps. Recently, global investment bank UBS said that midcaps will outperform over the next year as economic recovery picks up pace. On the other hand exposure to staples has been reduced along with bonds, Europe and healthcare.
Cash levels at the lowest
In November FMS saw that cyclical rotation resumed post election with buyers in rally laggards. Investors are buying more and more equities which has helped reduce cash levels to merely 4.1%, down from 4.4% in the previous month. Prior to the pandemic cash levels were at 4.2%. Cash levels have collapsed 1.8 percentage points in the last 7 months, the fastest drop ever. However, cash levels are close to triggering the FMS cash rule sell signal, which occurs when cash levels go below 4%.
BoFA’s FMS shows that the second wave of covid-19 is the biggest tail risk that fund managers see. Tech bubble, civil unrest, and credit event are the other three tail risks that FMS investors see for global markets. Inflation too remains a worry with 75% of those surveyed expecting higher global CPI in the next 12 months, highest since August 2018.