Bank of America-Merrill Lynch (BAML) released its latest Global Fund Manager Survey earlier this week, capturing the views of hundreds of money managers on the current state of financial markets.
It always provides a few talking points, and is often seen a contrarian indicator as to what will happen next.
Here’s a few of the interesting charts that were contained in the latest report, looking specifically at the biggest risks for markets, the most crowded trades along with their view on the outlook for the global economy and inflation.
The first show what fund managers think are the biggest risks to global markets at present.
Replacing a rout in bond markets, a policy misstep from either the US Federal Reserve or the European Central Bank (ECB) is now deemed to be the biggest risk to financial markets, although a bond rout or geopolitical concerns are also seen as tail risks among many fund managers.
A policy misstep likely reflects that the Fed and ECB are both likely to continue or begin monetary policy normalisation in the coming months, despite ongoing weakness in global inflationary pressures.
The next chart shows what outcomes would be the most surprising for markets over the next six months.
A net 49% of fundies believe that the most surprising outcome over the next six months would be a global recession, an outcome that likely reflects continued strength in most economic indicators outside of inflation at present.
And here’s what fund managers believe are the most crowded trades right now.
For a fourth consecutive month, being long US tech stocks was regarded as being the most crowded trade at 31%, although being short the US dollar was a new entrant to the list with 21%.
Both have had strong moves so far this year, with recent moves in each suggesting that lopsided positioning may be adding to the risk of a reversal in the period ahead.
The final chart shows what conditions are likely to prevail across the global economy over the next 12 months.
Despite the risks, it’s clear that fund managers are growing increasingly confident on the global economic outlook. A significant 42% expect a “Goldilocks” scenario — where growth is above trend but inflation lower than normal — to prevail over the next 12 months.
Such an scenario is seen as ideal for riskier assets given the likelihood that easy monetary policy settings will be maintained.
Although an increasing number expect a “Goldilocks” outcome, a slim majority of 46% still expect that “secular stagnation” will occur where both growth and inflation will remain lower than usual.
As witnessed over the past decade, that too has generally helped to spur gains across financial markets.
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