And without further ado, it’s time for the latest installment of BofAML’s monthly Global Fund Manager survey.
You’ll recall that the December edition of Michael Hartnett’s widely-followed poll contained a number of notables, including “Long FAANG+BAT” dethroned as the most crowded trade (supplanted by “Long USD”) and fund managers turning the most bearish on the global economic outlook since October 2008 or, more to the point, since the immediate aftermath of Lehman.
Review more highlights from the December survey
The January installment is similarly chock-full of notables.
First, nearly 2/3 of respondents see global growth decelerating over the next year, and as Hartnett writes, “that’s the worst outlook on the global economy since Jul’08, and now below the trough in Jan’01.”
As the chart header there suggests, either folks are too bearish, or a recession is imminent. As to that latter point, only 14% of the very same respondents see the world falling into a recession this year. So, either this is buying opportunity, or else a hilarious example of cognitive dissonance run amok.
Meanwhile, investors are hyper-concerned about balance sheet discipline. Specifically, Hartnett notes that the “preferred use of corporate cash flow” is now overwhelmingly “improving balance sheets”. At 50%, that preference is the highest since September 2009, while “capex” is the lowest since October 2009 and those expressing a preference for (more) shareholder handouts is just 13%.
On the “crowded trade” front, the dollar retains the top slot and respondents said the greenback is the most overvalued in more than 16 years.
While “trade war” fears have receded, trade is still the number one tail risk, albeit by a much smaller margin.
Notably, just a net 7% of respondents see a flatter curve, from 30% last month and as Hartnett illustrates, that’s usually a good leading indicator.
Summing it all up, Hartnett writes the following (and this is indicative of his truncated, “equation”-esque style:
Bearish positioning = rally: investors bearish, GDP & EPS optimism has crashed, 10- year high in leverage fear…but investors discounting “secular stagnation” not recession, a steeper yield curve, and are adding risk via tech stocks & EM assets.