Global fund managers remain bearish, cash levels highest since 9/11, and hawkish central banks feared

Global fund managers continued to remain bearish in the month of May, increasing their cash levels to the highest since the 9/11 disaster in 2001.

Further, hawkish central banks across the globe and a fear of global recession are being considered as the biggest 'tail risk’. (Image: REUTERS)

Global fund managers continued to remain bearish in the month of May, increasing their cash levels to the highest since the 9/11 disaster in 2001, Bank of America’s (BofA) Global Fund Manager survey showed. On a month-on-month basis, fund managers have increased their cash position by more than 5 percentage points. Further, hawkish central banks across the globe and a fear of global recession are being considered as the biggest ‘tail risk’ ahead for global growth. Last month too the BofA survey showed that global fund managers were bearish with global growth optimism at an all-time low since the survey was started.

Cash levels at 20-year high

The May survey of fund managers showed that a net 53% were bullish on cash. This is contrary to what was seen last month where cash levels were down to 5.5%, from 5.9% in the month of March this year. In May, cash levels rose to 6.1%, a 20-year high. Rising inflation, faster than expected rate hike cycle and geopolitical worries are weighing in on sentiments. 

BofA said that their Financial Market Stability Risks Indicator is currently at 7.5, a record high. Amid heightened risk, investors do keep cash in an attempt to avert risk. Further, growth optimism is at an all-time low. “Growth expectations remained weak as net FMS investors expecting a stronger economy fell further to an all-time low (net -72%),” BofA said. Profit expectations also fell further below COVID low levels to net -66% (from 63%), the weakest since October 2008. 

Hawkish central banks a concern

Talking about the biggest tail risk ahead, fund managers surveyed by BofA said that hawkish central banks are the biggest risk. 31% of the surveyed participants are concerned about central banks while 27% see global recession as the biggest tail risk and 18% feel inflation is the biggest concern. Only a mere 1% now see covid-19 as a major risk.

Diving deeper into central banks, the survey said that a large number of participants believe that the US Federal Reserve will hike interest rates close to 8 times in this tightening cycle. Till last month most fund managers were siding with close to 7 rate hikes. 

Asset allocation

Overall on equities, fund managers are 13% underweight — highest since May 2020. The trend is clear with more defensive positions being taken up. “FMS investor positioning turns the most defensive since May 2020 with combined net % overweight in utilities + staples + healthcare at 43%,” BofA said. 

The survey showed that investors in May got more defensive, increasing allocation to staples, cash, and the healthcare sector while at the same time cutting exposure to Technology. In terms of asset class, cash, alternate investments, and commodities are some of the bullish trades while investors are bearish on equities and bonds. 

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