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Fund managers globally selling bonds, shift to equities: BofA-ML survey

Key Takeaways:
1/11

Key Takeaways:

Global EPS expectations remain bearish, despite improving 10ppt this month to net 35% of investors saying they expect profits to deteriorate over the next year

In this month’s survey, 43% of investors want corporates to spend cash on improving their balance sheets, while 39% prefer they invest in capex and 14% say corporate should return cash to shareholders

Positioning vs History
2/11

Positioning vs History

BofAML done the survey between October 4 and 10 and an overall 230 panelists with $620 billion in assets under management participated in the survey. Here are the top highlights:

FMS cash rises to 5.0%
3/11

FMS cash rises to 5.0%

FMS cash level rose 0.3 percentage point to 5 per cent, just above the 10-year average of 4.6 per cent, and well off recent high of 5.7 per cent in Jun'19. The FMS Cash Rule has been in “buy” territory for 20 months. BofAML Bull & Bear indicator at 1.3 stays in contrarian "buy" territory.

As a reminder, the FMS Cash Rule works as follows: when average cash balance rises above 4.5 per cent, a contrarian buy signal is generated for equities. When the cash balance falls below 3.5 per cent, a contrarian sell signal is generated.

October 2019 Global FMS
4/11

October 2019 Global FMS

This month FMS investors rotated into defensive equities like healthcare and consumer staples and out of cyclicals like materials and banks.

Global Economy to experience recession?
5/11

Global Economy to experience recession?

Recession risk is still a top concern tempering risk appetite, as 31 per cent of FMS investors expect a recession over the next 12 months vs 67 per cent who see a recession as unlikely.

Global short-term interest rates
6/11

Global short-term interest rates

Just 18 per cent FMS investors expect short-term rates to rise over the next 12 months, a strong reversal from Sept'18 when 87 per cent FMS investors expected higher short-term rates.

Will trade war be resolved?
7/11

Will trade war be resolved?

43 per cent of FMS investors think the US-China trade war is the new normal against 36 per cent who think they will see a resolution before the 2020 US Presidential election.

Policies that would be most bullish?
8/11

Policies that would be most bullish?

Aside from the end of the trade war (#1 FMS "tail risk") FMS investors think a German fiscal stimulus package, a 50 basis point cut by the Fed or a Chinese infrastructure package would be the most bullish for risk assets over the next 6 months.

Assets overvalued?
9/11

Assets overvalued?

46 per cent of investors rated European government bonds as the most overvalued, followed by private equity (19 per cent), US growth stocks (14 per cent), and BBB corporate bonds (13 per cent).

'Value stocks' vs 'Growth stocks'
10/11

'Value stocks' vs 'Growth stocks'

Value stands to benefit most from a ramp up in fiscal policy. Around 12 per cent of FMS investors expect value to outperform growth over the next 12 months, up 5 percentage point against last month.

Market performance
11/11

Market performance

The US equity market significantly outperformed over the past 10 years. 30 per cent of investors said emerging markets will outperform in the 2020s, followed by the US (22 per cent), China (17 per cent), and Europe (15 per cent).

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