Managers' pessimism about global growth deepens – BofA survey

Investor pessimism is reaching dire levels as expectations of global growth and profits continue to sink amid a confluence of high inflation, central bank moves and fears of a global recession, according to the results of Bank of America's July Global Fund Manager Survey.

Of the 293 surveyed fund managers, which oversee a total of $800 billion in assets, expectations of global growth were at a net -79% in July, a new low in the history of the survey after reaching its previous all-time low of a net -73% in June.

Also, a net 79% among survey respondents expect global profits to decline over the next month, the most since October 2008 and up from a net 72% in June.

Inflation remaining high tops the list as the biggest tail risk for managers at 33% (up from 22% in June), followed by a global recession at 24% (previously 25% in June), hawkish central bank increases at 17% (previously 23% in June), systemic credit events at 10% (9% in June), the Russia-Ukraine conflict at 7% (6% in June), and civil unrest and a COVID-19 resurgence at 4% each (no results in June).

When asked how they see the global economy trending over the next 12 months, 90% said they expect stagflation (below-trend growth and above-trend inflation), which was up from 83% in June and represented the highest percentage in the history of the survey.

Also according to the survey, investors expect the Federal Reserve to hike rates by 150 basis points or more, leading to a month-over-month rise in cash levels to 6.1% in July from 5.6% in June, the highest level since October 2001 following the 9/11 terrorist attack.

Only 5% of fund managers expect a global economic boom (above-trend growth and inflation) over the next 12 months, down from 12% in June.

In addition, a net 58% of respondents said they are currently taking lower-than-normal risk levels, up from a net 48% in June and the highest level recorded in the history of the survey.

Asset allocation to U.S. equities fell to a net 44% underweight in July's survey from 15% underweight in June. The allocation had been a net 6% overweight in April and as high as a net 55% overweight as recently as January following a peak of a net 62% overweight in April 2021.

Managers were surveyed between July 8 and July 15.