Global fund managers are getting bullish on the banking and technology sectors and are increasing allocation to commodities even as their expectations for faster global growth fell sharply, shows a  survey. Significantly, fund managers also say only US bond yields above 3.6 per cent would prod them to rotate funds from equities back into bonds. They also think a global recession is far off, at least not until late 2019.

The Bank of America Merrill Lynch (BofAML) fund managers survey (FMS) for May shows global investors now favour banks, technology and energy stocks while they avoid staples, telecom and utilities.

The survey shows fund allocation to technology inched up 4 per cent to a net 24 per cent overweight in May, off five-year lows in April. The fund managers are long on FAANG+BAT, that is, Facebook, Amazon, Apple, Netflix, Google plus Baidu, Alibaba, Tencent. This is most crowded trade for fourth straight month.

The survey, done between May 4 and 10 with 223 BofAML panelists, shows allocation to commodities at 6 per cent overweight; and was the highest since April 2012 when WTI was $105 a barrel. The current allocation is 0.7 standard deviation above the long-term average. This is not surprising given the rising trend in oil prices over the last two month. Brent North Sea contracts surged above $80 a barrel on Thursday, hitting the highest level since late 2014.

Fund managers have raised allocation to equities 5 per cent to a net 34 per cent overweight, after hitting an 18-month low of 29 per cent last month. The allocation is 0.2 standard deviation above the long-term average, showing the fund managers continued faith in the stock market prospects.

In fact, 76 per cent fund managers think equities have not yet peaked and the majority say not until 2019 or beyond; only 19 per cent think January marked the top. The fund managers are short on bonds and bond proxies as the benchmark 10-year Treasury yields have spiked above the 3 per cent mark. Rising bond yields have created panic in emerging markets on anticipation that foreign investors would move back funds to the US.

But fund managers now say 3.60 per cent is now the "magic number" that would cause them to rotate their funds from equities back into bonds, slightly up from 3.5 per cent in April.

Expectations for faster global growth fell again, down 4 per cent to just 1 per cent in May, the lowest since 11th February 2016 when the S&P 500 hit an intraday low of 1,810. Only 2 per cent of the survey respondents expect a recession in 2018; consensus is for Q1, 202, although investors are split between 2019 (41 per cent) and 2020 (43 per cent).

The biggest “tail risks” facing the markets now, according to the respondents who together handle $643 billion assets, Fed/ECB hawkish policy mistake (30 per cent), trade war (25 per cent) and geopolitics causes $100a barrel for oil (12 per cent).