Investors ’most bullish’ on equities in almost 3 years: BofA Fund Manager Survey

Fund managers worldwide have become the 'most bullish' on equities in almost three years, since November 2021. This surge in optimism is primarily attributed to expectations of interest rate cuts by global central banks, rather than anticipated growth in earnings per share (EPS), revealed Bank of America's (BofA) monthly Fund Manager Survey (FMS) for May.

In a survey conducted between May 3 and May 9, 2024, BofA Securities reported the participation of 245 panelists managing a combined total of $642 billion in assets under management (AUM). Of these, 209 participants with $562 billion AUM responded to the global FMS questions, while 134 participants managing $301 billion AUM responded to the regional FMS questions.

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FMS country-wise preference

According to BofA Securities, 18 percent of fund managers surveyed are overweight on Indian equities, although optimism levels have decreased compared to March 2024. In the Asia Pacific (APAC) region, Japan tops the preference list for equity markets, with a net 44 percent of global fund managers, followed by Taiwan at 21 percent. However, Thailand, Indonesia, and Australia are among the markets where global fund managers are least bullish, with net negative percentages of 18 percent, 15 percent, and 15 percent respectively.

BofA further noted that Japan remains the favored market for investors, with nearly half of the panelists not expecting it to peak anytime soon. The equity market is expected to be predominantly FX-driven this year, with corporate reforms and Bank of Japan (BoJ) policy also playing significant roles. Moreover, it highlighted that China's equity market has seen a 28 percent increase from January lows on hopes of a turnaround, with a net 41 percent of global fund managers expecting the Chinese economy to strengthen over the next 12 months. As a result, investors in the Chinese stock market have shifted from a wait-and-watch approach to building exposure, leading to a surge in the number of panelists favoring China to an 8-month high.

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FMS on macro

As per the survey, the first drop in global GDP and EPS expectations since September 2023 has been observed, driven by a surge in US macroeconomic pessimism. While the odds of a "no landing" scenario peak at 31 percent, a significant 78 percent of respondents consider a recession "unlikely," with a "soft landing" being the consensus at 56 percent. The likelihood of a "hard landing" remains low at 11 percent. Additionally, a record 55 percent believe that fiscal policy is "too stimulative," indicating that the peak "tailwind" from government spending may have been reached.

FMS on policy

A substantial 82 percent of respondents expect the Federal Reserve to cut interest rates in the second half of 2024, with 78 percent anticipating two or more cuts over the next 12 months. Furthermore, 47 percent expect lower bond yields. Consequently, "higher inflation" is seen as the number one tail risk for investors (41 percent), followed by "geopolitics" (18 percent) and a "hard landing" (14 percent).

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FMS on asset allocation

According to BofA Securities, the survey indicates that cash levels among global fund managers have reached a three-year low of 4 percent in May. Meanwhile, allocation to stocks has surged to its highest level since January 2022.

It also stated that May saw a modest defensive rotation from industrials to staples. In absolute terms, investors maintain significant overweights in large-cap growth stocks, health care, technology, Europe, and commodities, while holding large underweights in REITs (the largest since June 2009), utilities, UK equities, discretionary sectors, and bonds.

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FMS contrarian trades

In scenarios anticipating stagflation and/or a hard landing, contrarian trades include preferring cash over stocks, REITs over commodities, UK and China equities over Europe and Japan, utilities over technology, and discretionary sectors over health care.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.