Shining a Brighter Light on Global Investments: Bank of America's Latest Insights
Economic Confidence of Investors Mirrors Pre-Liberation Day Standards, According to BofA
Global financial players are feeling more optimistic about the world economy, according to Bank of America's (BofA) most recent Global Fund Manager Survey. The twinkle in their eyes has returned as economic worries take a backseat on most concerns.
A Shift in Perspective
Investor sentiment perked up in June, soaring to a three-month high of 3.3 on the index. This spike is a monumental jump from a mere 2.5 score just a couple of months prior, in April. Incidentally, investors shimmered when the cloud of a potential global trade war lifted, resulting in a more positive outlook on the economy. However, it's important to note that the survey took place between June 6 and 12, post-US-China trade détente, but before the recent escalation of geopolitical tensions in the Middle East.
The optimism spawned a reduction in cash levels to a three-month low and a significant lift in allocations to emerging market equities, energy, and bank stocks. There was even a slight increase in US stocks, although investors remained net underweight. The Eurozone received the most love, thanks to the announcement of fiscal stimulus in Germany and a move away from US stocks in the face of increased trade uncertainty. About 54% of respondents anticipate international stocks to be the top performers in the next five years, compared to just 23% who sing the praises of US stocks—a significant shift in expectations following more than a decade of US outperformance.
The Debate Over a Recession
While some optimism is in order, investors are not entirely giddy. A whopping 46% of respondents foresee a weaker global economy in the coming year, and 75% expect the economy to struggle with stagflation. However, there's hope on the horizon. A net 36% of respondents no longer see a recession in the next year as a likely event, down from 42% in April. The belief in a "soft landing" for the global economy has bloomed, with 66% expressing faith, up from 61% in May and an initial 37% in April.
Joy in the (Corporate) Balance Sheets
The improved economic outlook has investors high on corporate finances. For the first time since the end of 2015, more respondents see company balance sheets as underleveraged rather than overleveraged. When questioned about how executive teams should manage excess cash, a larger number, reminiscent of July 2013 levels, favored returning it to shareholders via dividends or buybacks.
The Forecast for the Greenback
One asset that doesn't quite share the same sunny forecast as the others is the US dollar. Investors have scaled back their exposure to the greenback to the lowest level in nearly two decades, a reflection of a broader "Sell America" trend among financial players. Worried about the administration's stance on global trade and the financial order it supports, these investors are shying away from US assets. The US Dollar Index has dropped more than 9% since the beginning of the year, pointing to its potential for notching the worst first half in more than two decades.
In a nutshell, the BofA Global Fund Manager Survey demonstrates that investors are increasingly bullish about the global economy, preferring international equities over US stocks, while the US dollar hangs in the balance for a continued decline. These trends suggest a more optimistic yet cautious global economic environment, with a clear move away from US assets.
- Investors are now more optimistic about international personal-finance and business opportunities, as seen in the increased allocations to emerging market equities, energy, and bank stocks revealed in the Bank of America's Global Fund Manager Survey.
- The survey also indicates a shift in investor expectations, with approximately 54% of respondents anticipating international stocks to outperform US stocks in the next five years, a significant change following more than a decade of US outperformance.
