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Fund managers now see a bear market of financial crisis proportions

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(Bloomberg) — Most investors anticipate a bear market in global equities as growth prospects have dipped to their lowest level since the 2008 financial crisis and the fallout from the war in Ukraine has added to concerns.

These are the findings of Bank of America Corp.’s latest monthly survey of fund managers around the world, conducted in the week ending March 10. As cash holdings surged to their highest level since April 2020, the early days of the Covid-19 pandemic, commodity allocations hit an all-time high. Equity exposure, on the other hand, fell to its lowest level in almost two years.

“The economy and earnings expectations are recessionary,” BofA strategists wrote about Michael Hartnett in a note to clients.

Persistently high levels of inflation, fears of more aggressive monetary tightening and Russia’s invasion of Ukraine have sent global stock markets tumbling. The fact that coronavirus infections are now also rising from China to Germany fuels fears of a deeper recession.

Although the capital ratio fell in March, BofA strategists note that it is not yet at “capitulation levels”. “The recent discrepancy between global growth and equity allocation is now being corrected with a significant drop in equity allocation,” they write. “However, investors remain overweight equities, not underweight; stock allocations are not at a level to say ‘close your eyes and buy’.

In the absence of more stimulus from the Fed, investors are shifting from banks and consumer discretionary to technology, commodities and utilities, and from small-cap stocks to large-cap stocks, according to BofA. The combination of investor positioning and monetary policy tightening means it is “too early” for a contrarian buy call, according to strategists at BofA.

Other survey results:

  • The war in Ukraine is the biggest risk for 44% of fund managers surveyed, followed by recession at 21% and inflation at 18%.

  • 62% of those surveyed fear stagflation, the highest proportion since September 2008; in February it was still 30%; only 35% see a boom, before it was 65%

  • 51% now see inflation as permanent, while 42% think it is only temporary

  • Investors favor cash, commodities, health care and energy and avoid bonds, eurozone stocks and the cyclical sector

  • Investors expect an average of 4.4 rate hikes by the Fed, compared to 4 in February

Title of the article in the original:

Fund managers now see a 2008 stock bear market, like Gloom

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