- Investors expecting a soar in global inflation are at a 12-year high, but stagflation expectations also close to 4-year highs
- Cash levels slumped from 5.8% in October to 5.0% in November
- Protectionism is seen as the biggest risk to financial market stability
The BofA Merrill Lynch November Fund Manager Survey shows surging inflation expectations and slumping cash levels among global investors.
“There will likely be a trade in ‘bond proxies’ soon,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch. “But our cyclical view of peak liquidity, globalization and inequality means the ‘yield’ dam has been broken.”
Manish Kabra, European equity quantitative strategist, added that, “Global investors’ equity allocations towards the UK are at their second lowest level since 2008, with the sterling considered the most undervalued in the history of our long-running survey. Europe seems placed for contrarians, with Eurozone allocations at below-average levels.”
Other highlights include:
- A record net 56% of investors think current fiscal policy is too restrictive and global inflation expectations soar to 85%, the highest in 12 years.
- Cash levels slumped from 5.8% in October to 5.0% in November, as global growth and profit expectations rise to one-year highs and the US election result is seen an unambiguously positive for nominal GDP
- However, stagflation expectations also close to 4-year highs as 22% of investors expect below-trend growth and above-trend inflation over the next 12 months.
- Protectionism is seen as the biggest risk to financial market stability (84%).
- Forty-four percent of investors think the rotation to cyclical styles and inflationary sectors will continue well into 2017.
- The US election result accelerates rotation into Banks, out of high dividend yield and bond proxies and catalyzes buying of US equities, selling Tech and EM.
- Allocation to Eurozone equities improves to 5-month highs of 8% overweight from net 5% last month.
- Allocation to Japanese equities dips modestly to net 5% underweight from net 3% underweight last month.
- Allocation to EM equities fall sharply to net 4% overweight from 31% overweight last month.