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BofA Fund Manager Survey: ‘Full Capitulation’ Into Deflation Trades, QE-Forever And MMT As Reflation Savior

"New highs, fewer bulls."

Not surprisingly, participants in BofA’s closely-watched Global Fund Manager survey turned less bullish in February compared to last month thanks (in part anyway) to the coronavirus.

The title of the new edition is “New highs, fewer bulls”.

The bank’s Michael Hartnett describes a “deflation theme” characterized by a “combo of tepid macro, COVID-19 virus [and] oil’s plunge offset by QE-forever consensus”. The result is what he calls “full capitulation into deflation assets”.


As you can see, that comes at the expense of the pro-cyclical rotation, as investors pared exposure to the Value over Growth reflation trade and energy names.

In fact, February saw the biggest rise in favor of those expecting growth to outperform since December of 2014.


On the macro side of things, expectations for Chinese growth plunged to -53% from 50%. Those surveyed now see China’s economy expanding at 5.2% over the next three years. That, folks, is the lowest since 2015, when Beijing devalued the yuan, sparking a mini-crisis which ultimately culminated in the January/February 2016 deflation scare and the Shanghai Accord.


Overall, growth expectations fell to a net 18% from 36% last month. The US election still tops the “tail risks” list, followed by a bursting of the bond bubble. Coronavirus came in a “disappointing” third place.

But there’s no need to worry, apparently. Because through it all, respondents still see room for stocks to run. In fact, survey participants see upside to 3,470 on the S&P.


That’s the highest since the question was first asked in the summer of 2018.

“We stay ‘irrationally bullish'”, Hartnett writes, reiterating a position from the past several months (which has, of course, been the right way to lean).

Oh, and when it comes to what can revive inflation, modern monetary theory tops the list. To wit:

The inflation catalyst: FMS investors say MMT most likely to increase global inflation expectations (26%), followed by G7 infrastructure spending plan (24%) & “election of progressive liberal” as US president (18%)


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