Global funds cut equity outlook but say Fed’s hiking cycle over

NEW DELHI: Equities may be rising in most markets globally, but money managers are increasingly sidestepping this asset class, reflecting their lack of conviction that this rally can prolong.

BofA-ML’s latest monthly fund managers’ survey showed only 3 per cent of money managers globally would like to have an overweight stance on equities, reflecting their worst outlook for the risky asset class since 2016.

Global funds’ allocation towards equities has fallen by 3 percentage points to 3 per cent overweight. Only once in last six years was the stance on equity so negative.


The survey suggests global funds have no faith in the current equity rally and bulk of the investors are preferring to stay on the side lines.

Investors are going long on defensives like cash, REITs and short-term instruments. “The pain trade for stocks is still up,” said Michael Hartnett, chief investment strategist BofAML.

Only 30 per cent of fund managers are net long on equities, the lowest level since December 2016, showed the survey. This is at a time when global growth and profit expectations rebounded strongly for the second straight month.

A slowdown in China (30 per cent) leads the list of biggest tail risks, followed by a trade war (19 per cent), which had topped the list for the previous nine months. Corporate credit crunch (10 per cent) comes third.

“Profit expectations rose, rate expectations fell, and cash levels fell from 4.8 per cent to 4.6 per cent; yet allocations to stocks dropped to their lowest level since September 2016,” the survey found.

Meanwhile, most money managers expect US Fed to maintain status quo on policy rate over the next 12 months. The US central bank will come out with new money policy later on Wednesday.

One-third of the fund managers surveyed said the Fed hiking cycle is over, while 53 per cent felt short-term rates will remains unchanged or slip some bid over the next 12 months.

For the first time in the survey's history, short European equities (19 per cent) was cited as the most crowded trade, replacing long emerging markets (16 per cent), which dropped to fourth.

On the currency front, 50 per cent of investors believe the US dollar is overvalued while 38 per cent felt the GBP is undervalued, the lowest valuation since the question was first asked in 2002.