BofA Survey Flags Inflation As Top Risk To Global Markets Despite Risk-On Rally

Inflation has replaced oil prices and artificial intelligence as the biggest threat to global markets, according to Bank of America’s (BofA) latest Global Fund Manager Survey, even as investors continue to increase exposure to equities and other risk assets. The survey, conducted between 8 May and 14 May, covered 200 fund managers overseeing assets worth USD 517 billion.

A key signal emerged from fund manager cash holdings. Average cash levels dropped to 3.9% in May from 4.3% a month earlier. BofA said this marked the biggest monthly decline since February 2024.

Since 2011, such signals have been followed by a median 4-week decline of 1% in global stocks. In some instances, corrections have extended as much as 29%, according to the survey.

Fund Managers Shift Towards Soft Landing View

The survey found investor expectations around the global economy to have improved sharply over the past month. It found that:

• 4% of respondents now expect a hard landing, compared to 9% in April
• 46% of fund managers are positioning for a soft landing, while 39% expect a no landing outcome

Worries About Bond Markets

The survey also showed concerns around the US bond market. With 30-year US Treasury yields trading at their highest level since August 2008, 62% of fund managers expect yields to rise towards the 6% mark. Expectations of aggressive interest rate cuts by the US Federal Reserve also remained weak. A combined 58% of respondents expect either no rate cut or just one cut over the coming months.

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AI Trades Seen As Crowded

While concerns around AI-linked valuations remain elevated, 50% of the respondents said AI stocks are not currently in bubble territory. However, positioning in semiconductor stocks has become heavily crowded. Also:

• 73% of fund managers identified long global semiconductors as the most crowded trade in markets right now.
• Only 7% of fund managers expect prices to remain above those levels over the next 12 months, despite oil continuing to trade above USD 100 per barrel.

Most respondents expect crude oil prices to move within the USD 70 to USD 90 per barrel range during that period.

Source:

CNBC TV18