The current sentiment among FMS (Fund Manager Survey) investors reflects a shift in market dynamics, with a move away from extreme bearishness, although it has not yet reached a fully bullish stance. Here's a summary of the key points:
Investor Sentiment:
- Global equity allocation has reached a 17-month high, indicating reduced bearishness.
- Cash levels remain relatively high at 4.9%, indicating caution.
- There has been a significant shift in relative exposure, with a record increase in investment in US equities and a record decrease in Emerging Market (EM) equities. This is due to waning optimism about China's growth, which has fallen to "lockdown lows."
- BofA Bull & Bull Indicator has risen to 4.1, suggesting a moderate bullish sentiment.
FMS Convictions:
a. The majority (74%) believe in a "soft or no landing" scenario for the economy.
b. A significant portion (75%) expect short-term interest rates to fall.
c. There is a consensus (0%) to avoid investing in China, as there is little expectation of stronger growth in the country.
d. Japan is favored, with the largest Overweight (OW) position since December 2018.
e. A strong conviction (77%) exists for investing in quality assets.
f. US tech is seen as the most crowded trade by 55% of respondents.
Macro Outlook:
- A net -53% of investors are pessimistic about global growth, but only 21% foresee a hard landing, and 27% expect no recession at all.
- Inflation expectations have risen to their highest level since May 2022.
- Sticky inflation and hawkish central banks are still considered the biggest "tail risk" by 40% of respondents.
Policy Views:
- A majority (6/10) believe that the Federal Reserve is done with its policies (contrasting with July when 9/10 thought otherwise).
- 74% anticipate the first Fed rate cut in either Q2 or H2 2024.
- However, there is skepticism about China's policy, with only 15% expecting a significant fiscal stimulus. Investors see China's real estate market as the top source for the next global credit event.
FMS Contrarian Views:
- Risk asset bears are seen as vulnerable to a potential China recovery or the end of geopolitical tensions. Contrarian positions include going long on high-yield bonds (HY), real estate investment trusts (REITs), Europe, Emerging Markets, and China, while shorting the US dollar.
- Risk asset bulls may be at risk if US interest rates rise for a prolonged period or a hard landing scenario materializes. Contrarian positions include going long on bonds, utilities, and shorting US tech stocks and Japanese assets.