Investor expectations of global growth improved to a two-year high level to 62% from 57% in December, while global inflation expectations remain elevated, with the fifth highest reading on record, BoFAML said in a report. The percentage of investors expecting “above-trend” growth and inflation hits over 5-year high of 17% from 12% in December.
Around 47% of the fund managers surveyed for the purpose believed that long dollar trade is the most crowded segment. Also, as many as 13% of the fund managers — the most since April 2003 — thought that the Euro is undervalued at current levels.
However, cash levels rose to 5.1% from 4.8% in December, well above the 10-year average of 4.5%, the report said.
Three most commonly cited tail risks are trade war/protectionism, US policy error and China FX devaluation. Of the fund managers surveyed, 29% voted war/protectionism as the most tail risks, flowwed by US policy error 24% and China FX devaluation with 15%.
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“Ahead of the US presidential inauguration, investors are positioned for stronger growth and inflation, but are not willing to turn fully bullish with China-related risks on the horizon,” said Michael Hartnett, chief investment strategist, BofAML.
In January, investors are mostly interested in buying Eurozone, tech, equities and REITs, while selling industrials, EM equities and commodities.