In anticipation of a bear market, fund managers have increased cash positions to the highest level since April 2022 – early Covid-19 pandemic days – as their equity allocation plummeted.

Global fund managers expect stock markets around the world to enter a bear market, with a drop of more than 20% likely this year, the monthly Bank of America survey found. Spurred on by the war between Russia and Ukraine, 60% of BofA surveys now believe a bear market is imminent in 2022, doubling from 30% last month. In anticipation of a bear market, fund managers have increased cash positions to the highest level since April 2022 – early Covid-19 pandemic days – as their equity allocation plummeted. Over the past month, the S&P 500 is down 4.75%, the Dow Jones is down 4% and the NASDAQ is down 8.3%.

Cash levels rise, macro outlook falls

BofA research showed that fund managers’ cash position rose to 5.9% from 5.3% last month as investors became more cautious and bearish. Data showed that cash positions for fund managers were at similar levels in March and April 2020 as the Covid-19 pandemic began to spread across the globe. Cash levels are higher than during the global financial crisis of 2008 and higher than the euro debt crisis of 2011-2012. Investors prefer to book profits and hold cash when anticipating a bear market. Foreign institutions have been net sellers of domestic equities for months.

The macroeconomic outlook is weak, according to the BofA survey, the lowest since July 2008, when the Lehman Brothers collapsed. “FMS in March dropped 44 percentage points on a monthly basis to 64% of FMS forecasting a weaker economy over the next 12 months, the worst since July 2008,” BofA said. The biggest concern of recent months has been inflation, which has risen to a 40-year high in the US. Fund managers said inflation could persist, with 51% thinking price increases are permanent and not transient.

Asset allocation

While the highest allocation goes to cash, it is followed by commodities, healthcare and energy, while eschewing bonds, the EU and discretionary. 48% of survey participants believe oil will provide the best return in 2022, followed by gold. Long oil/commodities has now become the busiest trade among fund managers, replacing long US tech, which has been favored since July 2021. The conflict between Russia and Ukraine has sent crude oil prices soaring and the sanctions against Russia are likely to further increase commodity prices.

Looking at investor positioning relative to the average positioning over the past 10 years, BofA said investors remain war-focused on commodities, cash and staples versus history, while at the same time being highly underweight assets such as the EU, equities and emerging markets vulnerable to war. By becoming sector specific, fund managers have become more defensive, moving from banking and consumer discretionary to technology, commodities and utilities.

Biggest risk ahead?

44% of respondents believe that the conflict between Russia and Ukraine is the biggest tail risk facing the world right now. This is up from less than 10% that it listed as a risk a month ago. Furthermore, global recession, inflation and aggressive central banks are also seen as risks. Fund managers expect more than 4 rate hikes by the US Federal Reserve in 2022.


This post Global equities Bear market expects fund manager survey says cash allocation is rising was original published at “https://www.financialexpress.com/investing-abroad/featured-stories/stock-market-to-fall-global-fund-managers-say-cash-level-rise-equity-holdings-down/2462686/”

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