Fund managers are most Overweight bonds vs stocks since April 2009 – BofA’s survey

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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.