Expectations for global growth are at their highest level in two years amid waning recession concerns, Bank of America’s global survey of fund managers showed. Moreover, risk appetite is now the strongest since November 2021, according to the findings.
The survey revealed a significant shift towards stocks, marking the highest allocation in two years, with a “big rotation” towards Europe, emerging markets (EM), and the financial sector, strategists at Bank of America said in a note.
For the first time since May 2023, investment in both Eurozone and emerging market equities has surged to a new high.
“This growing bullishness on international equities highlights FMS investors’ improving sentiment on global growth expectations,” the note states.
Moreover, investor sentiment is the most optimistic it's been since January 2022, as indicated by cash levels, equity investments, and expectations for economic growth.
Cash levels have slightly increased to 4.4% from 4.2% of assets under management (AUM) “leaving BofA Bull & Bear Indicator at 6.5…bullish but not yet extreme bullish,” analysts at Bank of America wrote.
The strategists pointed out that a rise in average cash balances above 5% usually “triggers a buy signal for equities.”
The survey also found that 32% of participants view rising inflation as the primary risk, while the expectation for lower bond yields has decreased to 40% from 62% in December. For the first time since January 2022, investors are positive about the outlook for profit growth.
In addition, it highlighted the most popular investment strategies, with the top positions being a strong preference for the 'Magnificent 7' tech giants (58%). When asked, 45% of respondents said they do not think AI is in a bubble, while 40% said yes.
Other most crowded trades include shorting Chinese equities (14%), betting on Japanese stocks (13%), investing in Bitcoin (10%), holding cash (3%), and investing in investment-grade corporate bonds (2%).