In a survey Bank of America Merrill Lynch conducted a week before Donald Trump's inauguration, fund managers said they were positioned for stronger growth and inflation, but still hesitated to reduce cash.
A net 62% of investors said they expected global growth to improve, up from net 57% in Merrill's December survey. Global inflation expectations remained elevated at net 83%, the fifth highest reading on record.
Seventeen percent of investors said they expected "above-trend" growth and inflation, a 5.5-year high and up from 12% in December, according to the survey.
The survey identified a big rise in the percentage of investors who expected corporate earnings to rise by 10% or more in the next 12 months — to net -22% from net -47% in December, the most bullish reading since June 2014.
However, cash levels rose to 5.1% from 4.8% in December, well above the 10-year average of 4.5%. Why?
The survey pointed to three tail risks most often cited by respondents:
- Trade war/protectionism — 29%
- U.S. policy error — 24%
- China foreign exchange devaluation — 15%
"Ahead of the U.S. presidential inauguration, investors are positioned for stronger growth and inflation, but are not willing to turn fully bullish with China-related risks on the horizon," Michael Hartnett, chief investment strategist at BofAML, said in a statement.
For its January global fund manager survey, BofAML polled 215 investors with $547 billion in assets under management.
Forty-one percent of managers responding to the poll said the biggest equity driver over the next six months would be Treasury yields, while 28% cited the U.S. dollar and 14% said the European risk premium.
