Investors flock to cash on recession, credit crunch concerns
Author of the article:
Bloomberg News
Ksenia Galouchko
Published May 16, 2023 • 2 minute read
Pedestrians walk by the New York Stock Exchange. Photo by Victor J. Blue/Bloomberg The mood among global fund managers soured further in May, with investors flocking to cash amid concerns that a recession and credit crunch are looming, according to Bank of America Corp.’s latest survey.
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Access articles from across Canada with one account. Share your thoughts and join the conversation in the comments. Enjoy additional articles per month. Get email updates from your favourite authors. The sentiment among fund managers deteriorated to the most bearish this year, with 65 per cent of survey participants now expecting a weaker economy, BofA’s poll showed. At the same time, almost two-thirds of investors see a soft landing as the most likely scenario for global economic growth and expect only a small contraction in earnings.
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Cash levels rose to 5.6 per cent in May, but exposure to equities also climbed to the highest this year, while bond allocations are now the biggest since 2009, according to BofA. In a “flight to safety,” allocation to technology shares had the biggest two-month increase since the global financial crisis and being long Big Tech is the most crowded trade.
The rally in global stocks has stalled in May, as investors fret over sticky inflation and the impact on growth from higher-for-longer interest rates. Continuing negotiations over the United States debt ceiling are also putting a lid on risk appetite, though most surveyed fund managers expect it to be raised by the so-called X-date.
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The latest economic data also didn’t bode well for sentiment, with investor confidence in Germany’s economy weakening for a third month as the country’s key manufacturing sector reels from a slump in demand.
BofA’s survey was conducted May 5-11, spanning 251 participants with US$666 billion under management.
Recommended from Editorial Market changes in progress, gaining steam and still to come Gold looks to be ‘best hedge’ as U.S. debt-ceiling angst builds U.S. on the brink of a ‘hard landing,’ says billionaire investor Other survey highlights include:
There was a big rotation out of commodities and utilities, and into tech stocks — the highest since December 2021 — and eurozone equities; Investors are most long growth versus value stocks since July 2020; survey investors have said only twice since September 2020 that growth would outperform value; After long Big Tech, the most crowded trades include short U.S. banks, short U.S. dollar, long European equities, long T-bills and long China equities; A bank credit crunch and global recession are seen as the top tail risks, followed by high inflation keeping central banks hawkish, worsening geopolitics and a systemic credit event; Share of surveyed investors expecting a debt ceiling resolution ahead of the X-date dropped to 71 per cent in May from 80 per cent in April. — With assistance from Michael Msika.
Bloomberg.com