The Strategist

Survey: Managers stockpile cash in anticipation of rising rates

07/14/2021 - 03:26

International portfolio managers are becoming less optimistic about the future of the global economy.

A July survey of portfolio managers conducted by Bank of America (BofA) analysts indicates a deterioration in investors' expectations regarding the prospects of the global economy. The survey involved 270 portfolio managers managing $805bn in assets. 

According to the survey, the number of respondents who were confident that global economic growth will accelerate over the next 12 months was 47% higher than those expecting a slowdown. This was 28pp lower than in June and the worst figure since May 2020.

However, 73% of those surveyed believe that the macro economy is in the middle of a growth cycle, whereas back in the spring there was a recovery phase. 

Expectations were strongly influenced by the Fed's June meeting which resulted in the announcement of an anticipated key rate hike as early as 2023. However, the majority of managers (almost 40%) fear that the first increase will take place as early as the second half of 2022.

Investor concerns about the outlook for the Chinese economy are growing as well. This factor ranks fourth amongst the key risks for the global economy, but its share rose from 7% to 13% over the month. Concerns about the Chinese economy have risen on the back of increased scrutiny of business. In July it became known that the Chinese authorities had prepared a requirement that large IT companies must undergo cybersecurity checks before IPOs abroad.

In such an environment, asset managers have begun to reduce investments in risky assets and increase the proportion of cash in portfolios. According to the BofA survey, the average share of cash rose from 3.9% to 4.1%. At the same time, the number of managers with equity investments above the indicative level was 58% higher than those with a lower level. During the month, it fell by 3 p. p.

At the same time, international investors increased their investments in US and European equities. The number of managers with a weighting of such stocks in their portfolios exceeded the indicative level by 11% and 45% more than those who had a lower weighting.