Global fund managers are now at their most bearish on the economy since 2008, during the Global Financial Crisis, with 60 percent expecting growth to weaken over the next 12 months, according to the Bank of America-Merrill Lynch fund manager survey for January.
That was up from 53 percent in December and was as bad as levels in January of 2001, during the dotcom bust, it said.
In addition, a net 52 percent of fund managers surveyed expected global profits would deteriorate over the next 12 months, the worst outlook since December 2008 and a sea change from 12 months ago, when 39 percent said they expected profits would improve, the survey found.
However, only 14 percent said they expected a global economic recession this year, projecting secular stagnation — or negligible to no economic growth — over the next two or three quarters instead, the survey found.
Allocations to equities improved, with a net 18 percent saying they were overweight on stocks, up 2 percentage points from the two-year low touched in December, but still below long-term averages, it said.
Fund managers were less enamored of U.S. stocks, going to neutral as only 1 percent said they were overweight the segment, down 5 percentage points from December, the survey found.
European equities remained out of favor, with fund managers saying a net 11 percent overweight, the largest proportion since August 2012, during the European debt crisis, it said.
But allocations to emerging market stocks jumped 11 percentage points to a net 29 percent overweight in January, up from a net 10 percent underweight in September, BofA-ML said.
Bond allocations fell 7 percentage points to a net 42 percent underweight, after December marked their highest allocation since the Brexit vote in June 2016, the survey found.
Cash appeared to gain currency, with the allocation rising 3 percentage points to a net 38 percent overweight, still well above the long-term historical average of 20 percent, BofA-ML said.
Fund managers also weren’t overly fond of the U.S. dollar, calling long trades over-crowded, and saying that it was the most overvalued since 2002, the survey found. But they said that emerging market foreign-exchange was at the cheapest since the survey question began in 2004.
The survey period was from 4 to 10 January and 234 panelists, with US$645 billion in assets under management participated in the survey, BofA-ML said.