Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Systemic credit event now seen as the biggest tail risk - BofA's survey

Published 21/03/2023, 11:00 pm
Updated 21/03/2023, 11:00 pm
© Reuters.

© Reuters.

By Senad Karaahmetovic

Investor sentiment is close to levels of pessimism seen at lows in the last 2 decades, according to Bank of America’s March Global Fund Manager Survey (FMS). The sentiment/positioning is consistent with prior major market lows, according to BofA’s strategists.

The investor sentiment declined in March with the average percentile rank of next-12-month growth expectations, cash allocation, and equity allocation falling to the lowest level since December 22.

“Net 51% of FMS investors expect a weaker economy in 12 months, up from 35% last month and highest since Nov'22. Note that the S&P 500 index has been flat over the same period and has not caught up with the deteriorating macro outlook,” the strategists wrote in a note.

FMS now indicates a 42% probability of the U.S. going into a recession, up from 24% in February - the biggest increase since last July. On the other hand, the vast majority of investors still expect headline inflation to be lower a year from now.

On the Fed front, 57% of FMS investors expect lower short-term rates. Overall, investors see an additional 75bp hike this cycle.

As far as risks are concerned, the systemic credit event is now seen as the biggest tail risk (31%), ahead of high inflation (25%). Along these lines, U.S. shadow banking is listed as the most likely source of a credit event (34%), ahead of U.S. corporate debt (17%).

The March FMS report also confirmed the trend of rotation from U.S. to euro zone equities with investors now the most OW euro zone stocks relative to U.S. stocks since October 2017. However, long European equities is now the most crowded trade (19%), ahead of the long U.S. dollar (18%).

Investors were also selling financials last week at the fastest pace since Russia invaded Ukraine. FMS investors are now net UW banks (3%) and tech (6%) stocks, the report shows.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.