Daily Management Review

Investors are expecting low growth rates and buying risky assets


05/18/2018


Portfolio managers of the largest investment funds expect a slowdown in the growth of the world economy, especially in the perspective of rapid tightening of the credit policy of the Federal Reserve System (FRS). However, in the coming year, the market is not expected to slip into recession, so investors continue to increase the proportion of shares in their portfolios.



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The May survey of portfolio managers conducted by Bank of America Merrill Lynch analysts indicates a sharp drop in investors' optimism about the fate of the global economy. Representatives of 223 funds took part in the survey. They managed assets amounting to $ 643 billion. According to the survey, the number of managers confident that in the next 12 months the economic growth rate will accelerate was almost equal to the number of those who are waiting for the slowdown in the world economy (the number of optimists was only 1% higher than the number of pessimists). This is the minimum value of the indicator since February 2016. At the same time, only 2% of the surveyed managers are waiting for a recession on a global scale.

In their forecasts, managers rely on leading indicators. In particular, PMI and Citigroup Economic Surprise Index have shown a decline since early 2018, although they are still in the positive zone. In addition, the euro area's GDP in the first quarter grew twice as slow as in the fourth quarter. The world trade is also demonstrating signs of slowing. All these factors indicate a high probability of a recession in developed economies, and investors believe that confirming disappointing trends with actual data is only a matter of time.

The investors' anxiety is primarily connected with prospects for monetary policy of the main central banks.

According to the survey, 30% of managers named unreasonable actions of the ECB and the FRS as a key risk with unpredictable consequences for the world economy. Only three increases were expected from the Fed at the beginning of the year, but investors already expect four increases against the background of the acceleration of inflation in the US. This week, the head of the Federal Reserve Bank of Cleveland Loretta Mester said that the regulator should gradually raise interest rates, given that inflation has not yet reached the goal at 2%.

Nevertheless, managers are still in no hurry to reduce the share of risky assets in their portfolios and increase the cash pillow. The average share of cash in portfolios fell from 5% to just 4.9%. At the same time, the number of managers, whose stock weight in portfolios jumped over the indicative level, exceeded the number of those who had lower shares by 34%. A month earlier, the excess was 29%. "Although the level of cash remains high, and expectations for economic growth are at the lowest level in the past two years, most investors say that there is still room for growth in the stock market. Portfolio managers believe that the May rally will continue in the near term, "notes Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch. 

source: bloomberg.com






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