Fund managers are most Overweight bonds vs stocks since April 2009

By Senad Karaahmetovic

Fund managers are still very cautious about global growth although the latest Bank of America’s Global Fund Manager Survey (GFS) points toward tentative signs of a trough in global growth expectations.

69% of FMS investors expect a weaker economy, which is down from 73% in November. Moreover, 68% of investors said a recession was likely, an improvement compared to 77% in November.

The optimism is mostly fueled by China reopening with three out of four surveyed fund managers expecting a strong Chinese economy next year, a big contrast compared to November. Net-net, 74% expect China to fully reopen by the end of 2023.

However, investors are growing increasingly worried about the earnings outlook with 91% expecting weaker earnings, up from 86% in November. This signals that investors are increasingly more focused on the earnings risk as 90% of surveyed fund managers now expect global inflation to fall in the next 12 months.

When it comes to asset classes, most expect bonds to be the best-performing asset in 2023. FMS investors are the most overweight bonds vs stocks since April 2009.

“We say Jan/Feb “pain trade” is up for bond yields & risk assets,” Bank of America’s investment strategists said in a note.

“If no GDP/EPS collapse Q1’23…long stocks, REITS, consumer, industrials; if big China reopening = higher-for-longer inflation/Fed funds…short bonds.”

As far as sectors are concerned, FMS investors are the most overweight healthcare relative to consumer discretionary since March 2006.