With just over a month left until the end of the year, investment managers are already planning their portfolio movements.
Jerome Powell
Latest survey among the main global fund managers (FMS), which performs monthly, the Bank of America (BofA) showed both sides of the coin of market sentiment: on the one hand The vast majority remains cautious regarding the economy, but on the other hand is optimistic regarding interest rates.. True to the spirit of the NFL, the survey shows that investors’ “playbook” for 2024 marks a soft landing for the economy, lower rates, a weaker dollaran uptrend in large-cap tech and pharma, and China and leverage off the menu.
Another relevant data emerging from the FMS is that investors cut the cash level from 5.3% to 4.7% (2-year low) and moved to the highest level of bond overweight since March 2009 and the first overweight equities since April 2022.
On the other hand, nearly 60% of investors expect weaker global growth, but 74% project a soft or no landing and only 21% say they anticipate a hard landing). On the topic of “short leverage,” CIOs tell CEOs to improve the balance sheet (52%) rather than increase capital spending (21%) or stock buybacks (18%). Regarding monetary policy, 76% say that the cycle of Fed increases led by Jerome Powell has ended, 80% expect lower short rates (this is the highest percentage since November 2008), 61% expect lower yields bonds even though the second-highest in history says fiscal policy is too stimulative.
Those on the opposite side point out that only 6% foresee higher inflation in 2024. Additionally, the November FMS shows long positions and rotation into bonds, technology (2-year high), real estate, US and Japanese stocks (5.5-year high) and rotation from short positions into cash, materials (minimum 3.5 years), industrials, banks, UK and Eurozone stocks.
Other data, positions in Big Tech long 38%, short China stocks 22%, and long US Treasury bills 11%. On the other hand, the other side foresees being long liquidity, short US growth stocks and Japanese stocks in a surprise hard landing scenario; long positions in cash, dollars and commodities.
In relation to the Latin American region, 47% of FMS participants largely expect the São Paulo Stock Exchange (Ibovespa index) to end 2024 above 130,000 points when the previous survey was 33%. “People rotating into equities could potentially be a key driver for equities in 2024 and is expected to happen when the benchmark interest rate (Selic) is around 9-10%. At the end of this flexibility cycle in Brazil, the majority of participants expect the Selic rate to be between 9.25% and 10%,” the BofA explains.
Another clue to watch is that cash levels fell slightly, although positioning remains cautious. Indeed, cash levels fell to 6.3% in November from 8% in October, but remain above their average of 5.2%. Additionally, risk-taking and protection levels are close to the survey’s historical average. High quality remains the preferred strategy. Investors still like it Energy, Public Services and Finance and are more underweight in Discretionary Consumption and Basics. US rates remain the biggest tail danger as it affects risk appetite. 75% expect Brazilian GDP growth greater than 2% in 2023 (compared to 62% the previous month) while for 2024 between 1% and 2%. The real is expected to remain virtually stable between 4.81 and 5.10 next year.
For its part, the Mexican case continues to attract the interest of investors as the economy continues to grow above trend, with investment booming and “nearshoring” or relocation that could continue to attract capital flows and investments. In this regard, Carlos Capistrán, BofA economist for Mexico and Canada, recently wrote that the investment boom is driven by “nearshoring” in the North and by public infrastructure projects in the South. FMS participants expect GDP to be between 2% and 3% in 2024.
Source: Ambito
