Investment managers this month grew uneasy about the prospects for the global economy as political conflict in Washington and fears about a slowdown in China weighed on the optimism that has lifted blue-chip stock prices to record highs.
Only 54% of the fund managers surveyed by Bank of America Corp. expect the global economy to strengthen in the coming year, down from nearly seven in 10 last month, but the numbers remain historically high.
According to the survey released Thursday, fewer than a third of the respondents expect corporate profits to improve in the next year, down from more than four in 10 last month. A higher number than last month also expect profit margins to shrink.
In conjunction with the slump in sentiment, fund managers have been tapering their exposure to stock markets. Slightly fewer than half are now taking bullish or optimistic bets on equities, a four-month low, as investors shift money to more conservative fixed-income investments.
Nearly two-thirds of fund managers said the United States was the most overvalued region, citing concerns about further cutting of U.S. government spending as the highest risk to the markets.
A growing number of investment managers also are worried by China and have been reducing their exposure to commodities, which often are considered a proxy for emerging markets growth. The number of investors betting against commodities doubled in October, and only 5% of Asian money managers expect China's economy to strengthen in the coming year, down from 28% last month.
But there are green shoots of optimism in some developed countries. Equity allocations in Europe have reached a six-year high, with nearly half of the managers surveyed taking larger bets on the Continent's long-troubled economies on the expectation of higher corporate profits.
Enthusiasm about Japanese companies also has increased for two months in a row, with nearly a third of the managers betting on the world's third largest economy as the reforms implemented by Japanese Prime Minister Shinzo Abe take root.
Only one in 10 fund managers is betting against emerging markets stocks, down 44% from last month.
Bank of America's researchers conducted the survey by interviewing 183 fund managers from Oct. 4 to Oct. 10.