The pessimism among institutional investors has increased. According to Bank of America's fund manager survey, risks are perceived in the central bank policies, the real estate sectors in the US and the EU, as well as the potential escalation of geopolitical conflicts.
International fund managers have become significantly more pessimistic again, according to the latest survey conducted by Bank of America Securities. The survey, which involved 295 participants managing a total of $736 billion, revealed that the cash ratio rose from 4.9% to a high of 5.3% in October.
Participants express pessimism, particularly regarding the global economic outlook. A significant majority of 50% of respondents now expect the world economy to weaken in the next twelve months. While 64% believe in a soft landing of the economy, the proportion of investors predicting a hard landing has increased from 21% in September to 30% in October.
In terms of systemic risks in the bond and credit markets, real estate in the US and Europe is perceived as the most dangerous by 34% of participants. This risk is seen as more significant than the one coming from the Chinese real estate market . Other potential triggers for a systemic credit event include the American shadow banking system , U.S. government bonds , and Japanese government bonds .
At least, however, institutional investors expect inflation to ease further. 80% foresee that global consumer price inflation will continue to weaken in the next twelve months. Accordingly, 73% anticipate that short-term interest rates will decrease during the same period. Three-quarters of the survey participants expect the yield curve to steepen within twelve months. The yield on ten-year US Treasuries recently reached the highest level in 17 months.
Long positions on large technology stocks are considered particularly overcrowded. Short positions on Chinese stocks are also prevalent. Currently, there is a rotation of market participants from European to American stocks. For instance, a net of 6% are favoring US dividend stocks, while a net 10% are avoiding stocks from the old continent. Japan is considered attractive, with a net 16% of participants being overweighted.
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