Money managers remain optimistic but not ecstatic about the global economy, according to Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
The latest survey reveals that a net 36% of managers expect global growth to improve over the next year, up 7 percentage points from last month and the highest level since February 2018. Meanwhile, inflation expectations went up 14 percentage points from last month to a net 56% of survey participants expecting a higher global consumer price index in the next 12 months, the highest level since November 2018.
The survey of 249 money managers representing a total of $739 billion in assets under management was conducted Jan. 9-16.
Of the fund managers surveyed, 19% think the global economy will experience above-trend growth and below-trend inflation, while 62% continue to expect below-trend growth and inflation.
A net 51% of surveyed managers expect the three-month/10-year U.S. Treasury yield curve to steepen over the next year, down 11 percentage points from the recent high in November 2019.
Global corporate profit expectations surged 14 percentage points from December, with a net 27% of managers expecting profits to improve over the next 12 months, the highest level since March 2018.
For the third straight month, cash levels remained at 4.2%, the lowest level since March 2013. The allocation to global equities increased 1 percentage point to a net 32% overweight, a 17-month high. The allocation to commodities increased 4 percentage points to a net 10% overweight, the highest level since March 2012.
A net 53% of those surveyed said the U.S. dollar is overvalued, the second highest level since 2002.
The outcome of the 2020 U.S. presidential election is the No. 1 tail risk among managers, at 29%, usurping a trade war with China (22%). Third on the list of top tail risks is the bond bubble popping (20%).
"Investors are bullish but not euphoric," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, in a news release about the survey results. "We stay irrationally bullish (about) risk assets until peak positioning and peak liquidity incite a spike in global bond yields and 'the big short' opportunity."