Liquidity levels at 12-month high
Big money managers are hoarding the most cash in a year amid concerns over inflation and slowing global growth, according to a survey conducted by Bank of America.
The average cash balance for respondents to Bank of America’s Global Fund Managers Survey was 4.7%, the highest since October 2020, as investors pulled cash from bonds, taking allocations to an all-time low. Bonds are underperforming in an environment of rising inflation.
“The October survey was “the lowest bullish momentum since October’20,” wrote Michael Hartnett, chief investment strategist at Bank of America. A total of 6% of respondents said global growth would weaken over the next 12 months.
The Charlotte, North Carolina-based lender surveyed 380 participants with $1.2 trillion in assets under management between October 8 and October 14.
“Boom” expectations dropped from 66% to 61%, while “inflation” expectations rose 14 percentage points to 34%. The gap between “temporary” and “permanent” inflation narrowed from 41 percentage points in September to 20 percentage points.
A total of 48% of respondents said inflation was the biggest “tail risk” to the markets. Inflation or the slowdown in the bond market remained the biggest concern for the eighth consecutive month. Concerns over the slowing down of the Chinese economy (23%) and COVID (3%) remained in the top three.
Survey respondents expect a 1.1 rate hike from the Federal Reserve in 2022. Forty percent believe the Fed will raise rates once next year, while 24% saw two rate hikes and 24% predicted none.
Long tech was considered the most “crowded trade” by 35% of respondents, followed by Long ESG, Short China and Emerging Markets, and Long Bitcoin.
According to the survey, investors looking for contrarian plays should sell America and technology to protect against “rate shocks” and those concerned with “growth shocks” should buy long bonds, utilities, staples and short banks, energy and commodities. The situation should be created.