(Bloomberg) - Concern over China’s sputtering economy has created a “dramatic shift” in investors’ equity allocation — a rush toward the US and an exodus from emerging markets, Bank of America’s latest global fund manager survey showed.
BofA said the “avoid China” theme has become one of the biggest convictions among the surveyed investors with $616 billion in assets under management. A net zero percent of the lot expect stronger economic growth for the country in the near future, a massive reversal from 78% in February this year, and the lowest since the lockdown lows of last year.
The trend is another signal of China’s declining heft in the global money pool. Doubts over the investability of Chinese equities have gathered steam as Beijing’s efforts to restore confidence have limited impact and as the West steps up oversight of exposure to Asia’s largest economy.
That’s had an impact on emerging markets equity allocation, which fell to a net 9% overweight in September from 34%, the lowest reading since November 2022. In contrast, allocation to US equities rose 29 percentage points to a net 7% overweight — the first overweight reading since August last year, according to the survey.
US equities have outperformed global peers this year, with the S&P 500 Index rising 17%. Meanwhile, the MSCI Emerging Markets Index has only gained 2%.
What’s more, readings from data showed that sentiment about China was more bearish than it was in September last year — just before China reopened following Covid curbs. Investors have also turned skeptical about the possibility of any stimulus that will boost China’s economy: just 15% expect a policy “bazooka.”
And, Chinese real estate is now seen as the number one source for the next global credit event.
More broadly, investors continue to warm up to the idea that the global economy will avoid a recession, with 74% of participants seeing either a “soft” or “no” landing, compared with only 21% expecting a “hard” landing. That said, they are still pessimistic: 53% are bracing for a weaker economy over the next 12 months, up from 45% in August.
The poll was conducted from Sept. 1 to Sept. 7, surveying 222 participants, and other findings include:
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Equity allocations jumped seven percentage points in past month to net 3% underweight, the highest since April 2022
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Bond allocation was down six percentage points to net 1% underweight, the first underweight bonds in seven months
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Cash allocation increased seven percentage points to net 27% overweight, the highest monthly jump in cash allocation since September 2022
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Biggest tail risk is high inflation keeps central banks hawkish for 40%
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Federal Reserve will cut rates, with net 69% expecting lower short-term rates, the most since December 2008
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60% believe the Fed is “done” hiking rates, compared with 47% in August and 9% in July
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Most crowded trades are long big tech for 55%, short China equities for 21%
By Michael Msika
With assistance from Shikhar Balwani
