Despite widespread pessimism, many fund managers expect an economic stagnation in the immediate future rather than a recession.
Over half (60%) of fund managers in a global survey expect global growth to weaken over the next 12 months, while 52% expect global profits to deteriorate in the next year. In both cases, these are the worst outlooks since 2008.
Yet only 14% of fund managers expect a global recession this year and instead they expect economic stagnation in the next two to three quarters.
A further negative finding from the monthly Bank of America Merrill Lynch (BoAML) Fund Manager Survey is an increase in fund managers – now at 48% – that consider corporate balance sheets to be overleveraged.
This is the first time since 2009 that corporate leverage becomes the chief concern amongst fund managers surveyed, with half of them preferring corporates to use cash to improve balance sheets rather than increasing capital expenditure or returning cash to shareholders.
Also, for the eighth month in a row a trade war tops the list of biggest tail risks cited by investors (27%), followed by quantitative tightening and a slowdown in China, both coming in at 21%.
“Investors remain bearish, with growth and profit expectations plummeting this month,” said Michael Hartnett, chief investment strategist at the bank. “Even so, their diagnosis is secular stagnation, not a recession, as fund managers are pricing in a dovish [Federal Researve] and steeper yield curve.”
Among fund manager investors in Europe, BoAML finds the EU growth outlook and equity allocations to be at their lowest in seven years, though only 23% of fund managers expect recession in next 12 months.
The bank also found that a record proportion of fund managers said sterling was undervalued while UK stocks were the “most hated” by both global and EU investors.
BoAML carried out the survey in January among 234 panelists globally.
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