What Are Investors' Biggest Worries Today?

Forty-two percent of global investors in December said hawkish central bank rate hikes are the No. 1 tail risk, according to Bank of America Global Research's latest global fund manager survey, released Tuesday.

Twenty-two percent of survey respondents said inflation is the biggest tail risk, while 15% worried most about a COVID-19 resurgence.

Investors increasingly fearful of central bank moves raised their cash levels to 5.1% from 4.7% in November. Cash allocation rose 14 percentage points month over month to net 36% overweight, the largest since May 2020, BofA said.

Fund managers' equity allocation declined 12 points from November to net 46% overweight, the lowest since October 2020. Their bond allocation rose six points to net 63% underweight.

Thirty-nine percent of investors said the most-crowded trade in December was long tech stocks. Eighteen percent said it was long Bitcoin, and 17% said the most-crowded trade was long ESG.

The survey was conducted Dec. 3 to Dec. 9 among 371 participants with $1.1 trillion in assets under management.

Growth Expectations Improve

The December survey found that investors' global growth expectations have stabilized and started to improve, with net 4% in December expecting improvement, compared with 91% who did so in March.

Only six out of 100 investors believed that a recession would occur in the next 12 months.

Global profit expectations improved by three points to net 9% in November, compared with the 89% peak in March, while global margin expectations improved by 12 points to net -29% as inflation concerns receded.

Despite continuing levels of high inflation, net 33% of investors said they expect lower CPI, according to the survey. At the same time, only 36% think inflation is permanent, while 55% say it is transitory.

Forty-nine percent of investors in the survey said they now expect two Federal Reserve hikes in 2022, while 23% expect one and 17% expect three hikes. Nine out of 10 investors think the Fed will tighten by the first half of 2023, with the average expectation now for July of next year, up from October.

On average, investors expect tapering to finish by next April.

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