“What Are Your Biggest Concerns?” Bank Of America’s Clients Respond

Those who frequent these hallowed pages are well aware that when it comes to event risk, it’s all about geopolitics these days.

As you’re also well aware, the Heisenberg raison d’être (if you will) is to help investors connect the dots between politics, macro, and markets. I’ve said from day one that asset prices will become increasingly dependent upon the vagaries of geopolitics and lo and behold, I’ve been exactly right. While risk has been buoyant, there’s no denying that the specter of Brexit and Trump hang over markets like smog over Beijing on an especially sh*tty morning.

Looking ahead, we’re staring down three key elections in Europe. First up, the Netherlands. Next, France. And finally, Germany.

I’ve variously documented the risks presented by all three of these electoral trials by fire (see here, here and here for examples of each).

Well, BofAML is out with their latest credit investor survey and you’ll never guess what everyone is most worried about.

To wit:

Not surprisingly, with the new US administration global risks – “geopolitical risk”, “China” and “trade war” – comprise the top-3 list of investor concerns (in that order). The two risks that saw meaningful increases in investor concerns were “US fiscal policy”, as the new administration has yet to deliver on that front, and “asset bubbles” – no doubt correlated with the rally in spreads and corresponding view on valuations. Perhaps more surprisingly – given this week’s 9% drop in oil prices (WTI) – we detected just a small increase in the proportion of investors concerned about “oil prices”. In contrast credit investors became much less concerned about three risks – “currency war”, “inflation” and “releveraging event risk” (Figure 3).

BiggestRisk

“And then we said”…

Populism

 

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