In the May 7-14 poll, 68% of investors called the rebound in equities a bear-market rally, or a short-term and fast bounce in stocks before they fall to new lows. Only a quarter believe that equities have entered a new bull market. Just 10% of the surveyed fund managers expect the economic recovery to be V-shaped, or quick and sharp, in contrast with 75% who predict a U- or W-shaped rebound that will take longer.
On the bright side, global growth expectations surged in May, with a net 38% of fund managers predicting the world economy will strengthen over the next 12 months, according to the BofA survey. At the same time, investors don’t see global manufacturing PMI rising beyond 50 — the level that signals expansion — before November.
Risk assets around the world have surged over the past two months on powerful monetary and fiscal support measures and spurred by optimism that growth can rebound as major economies relax lockdowns. However, continuing inflows into money-market and bond funds signal that many investors have avoided returning to equities amid fears about a second spike in infections and the lasting damage to corporate earnings.
The latest BofA survey showed a small reduction in cash levels to 5.7%, which is still well above the 10-year average of 4.7%, while bond allocation jumped to the highest since the 2009 financial crisis. Exposure to equities in May rose 10 percentage points to a net 16% underweight after hitting the lowest level since 2009 last month, according to BofA. Fund managers are long U.S. equities and short euro-zone stocks, the poll shows.
With the coronavirus continuing to dominate global headlines, the survey showed that investors see a second wave of the pandemic as the biggest tail risk for markets. A breakthrough in developing a vaccine is viewed as the most likely catalyst for a V-shaped recovery.
Since so many traditional fund managers have been staying away from risk assets, BofA’s survey provides a glimpse of which market players have been driving the rally in stocks. The responses shows hedge funds this month boosted their exposure to equities to a net 34% long position, bringing their allocation close to the levels seen before the February market collapse.
BofA polled 194 fund managers overseeing $591 billion in assets during the global survey.
©2020 Bloomberg L.P.