The Strategist

BofA survey: Inflation scares managers away

05/19/2021 - 03:58

Portfolio managers of major investment funds have cited high inflation as a key risk with unpredictable consequences for the global economy. However, the Fed or the ECB have not yet started to tighten monetary policy, which is keeping investors' worries in check.

Managers continue to actively invest in equities, favouring "value companies" that will be the beneficiaries of the ongoing global economic recovery.

A May survey of Bank of America (BofA) managers showed that concerns about the impact of inflation on the global economy have increased among investors. According to the survey, 35% of portfolio managers said rising consumer prices over a 12-month horizon could be a key risk with unpredictable consequences for the global economy. The monthly survey involved 216 respondents with $625bn in assets under management.

Concerns intensified after the release of April's US inflation data. According to the US Commerce Department, consumer prices (CPI) rose 0.8% last month to an annualized rate of 4.2%, the highest since 2008. Analysts polled by Trading Economics had forecast a rise of 0.2% and 3.6% respectively.

High inflation could force financial regulators to curtail liquidity programmes that were adopted during the crisis due to the pandemic. However, statements by leading watchdogs, primarily the Fed and the ECB, that tightening of monetary policy should not be expected in the near future, are giving managers hope that the period of excessive liquidity will continue at least until the end of the year. According to the BofA survey, over 85% of respondents expect a Fed rate hike only in 2022-2023. Portfolio managers therefore remain optimistic about the outlook for the equity market.