Perhaps the starkest change among fund managers over the past year has been regarding China's economy. In February 2023, the net percentage of investors expecting a stronger Chinese economy over the following 12 months peaked at 78%, and has since plummeted, with the latest survey showing a net 1% of respondents predicting that China's economy will weaken over the next 12 months.
When asked what kind of landing they expect the global economy to make by the end of 2024, 79% said they expect a soft or "no" landing over the next 12 months, while only 17% expect a hard landing. The responses are the most optimistic since May 2023, according to the survey.
Survey respondents said they were overweight equities for the third month in a row in January, although the net overweight level did drop to 9% from 15% in December. Bond allocations plummeted to net 3% overweight in January from a net 20% overweight in December, and cash allocations jumped 13 percentage points from December to January to a net 16% overweight.
Cash levels rising to 4.8% in January from 4.5% in December reflected tempering optimism regarding bonds, according to the Jan. 16 survey report.
Both bond and equity investors see the Federal Reserve as the greatest driver of prices in 2024. Sixty-eight percent of respondents said the Fed will be the greatest driver of bond yields in 2024, while 15% said global growth, 9% said U.S. fiscal policy, 5% said the Bank of Japan, and the rest said other.
The Fed will also be the greatest driver of equity returns, respondent said, with 52% reflecting that sentiment, while 33% said corporate earnings, 7% said liquidity, 3% said AI, 2% said China, and the rest said other.
One year ago, in January 2023, the majority of managers believed the Federal Reserve's federal funds rate would peak at a range of 5% to 5.25% in the second quarter of 2023. The survey report did not disclose the exact percentage of managers who provided that response, but the Federal Open Market Committed exceeded those expectations by raising the Fed funds rate to a range of 5.25% to 5.5% in July. With the rate paused since then, only 3% surveyed managers in January believe rates will go any higher, and the majority believing rates will be cut in the first half of 2024. Bank of America did not provide a specific number that expressed that sentiment in the survey report.
When asked what the overall largest tail risk is, the highest response reflected growing tensions regarding geopolitics, with 25% responding geopolitics as the largest tail risk (up from 17% in December), and that was followed by 24 responding an economic hard landing (down from 32% in December); higher inflation, 21% (down from 27%); systemic credit event, 11% (up from 9%); the U.S. election, 11% (up from 7%); China banking crisis, 3% (down from 4%); and AI bubble, 2% (no result in December).
Managers were surveyed between Jan. 5 and Jan. 11.