Fund managers are opening the new year with significantly less bearishness than December due to growing optimism regarding China and the Federal Reserve's interest rate actions, according to the results of Bank of America's January Global Fund Manager Survey.
Of the 286 surveyed fund managers, which oversee a total of $772 billion in assets, expectations of global growth were at a net -50%, which is still bearish; however, it represents a significant increase over the net -69% expressed by managers in December, along with the least amount of pessimism in a year.
One significant driver of managers' ebbing pessimism is bullish sentiment regarding China. The net percentage of investors expecting a stronger Chinese economy rose to 91% in January from 75% in December. As recently as August, that number was zero. Also, 91% of investors expect China will fully reopen by the end of 2023, which is up from 75% in December.
Pessimism has also abated because a majority of managers believe the Federal Reserve's federal funds rate will 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.
In addition, profit expectations improved slightly, with a net 65% of investors expecting global profits to decline over the next 12 months, down from 77% in December.
Also, a net 83% of surveyed managers believe that global inflation will be higher within the next 12 months, down from a peak of 90% in December.
And as risk sentiment begins to ease, cash levels dropped to 5.3% in January, down from 5.9% in December and 6.2% in November. The long-term average cash level for the fund manager survey is 4.7%.
Despite the growing sentiment that inflation has peaked, inflation remaining high is at the top of list of biggest tail risks for managers at 34% (down from 37% in December), followed by a deep global recession at 20% (the same as December), hawkish central banks at 19% (up from 16%), worsening geopolitics at 13% (up from 12%). Also, 9% of surveyed managers said a systemic credit event was the biggest tail risk, and 2% said a resurgence of COVID-19. The December survey did not provide percentages for the latter two tail risks.
Managers were surveyed between Jan. 6 and Jan. 12.