Mood among global fund managers is grim
Premium- The April survey by BofA Securities showed that global growth expectations plunged to their lowest level ever with net of 71% of respondents being pessimistic on outlook for global growth.
The April global fund manager survey is not as bearish as war-impacted March was, yet the picture is of little hope and a lot of despair.
To begin with, fears of faster-than-anticipated tightening by US Federal Reserve have weighed heavily on fund managers' optimism around global growth. The April survey by BofA Securities showed that global growth expectations plunged to their lowest level ever with net of 71% of respondents being pessimistic on outlook for global growth.
Also, the expectations of stagflation have risen to the highest level since August 2008.
"With war fears fading, stagflation fears have risen along with monetary risk ( as a risk to Financial Market Stability), now to its highest level ever," added the survey report.
Stagflation is scenario of high inflation, low economic growth and steadily elevated levels of unemployment. Stagflation is also known as recession-inflation.
Investors should note that the retail inflation in the US has jumped to a new 40-year high of 8.5% March. In India, inflation measured via the consumer price index rose to a 17-month high of 6.95% in March. In both the cases, food inflation has remain elevated, especially after the Russia-Ukraine conflict escalated.
Little wonder then that a global recession remains the top tail risk to the portfolios of global fund managers. This is followed by hawkish central bank actions on interest rates, inflation and the Russia-Ukraine conflict.
Analysts at Rabo Bank point out that while the series of negative supply shocks may not pull the US economy into recession, the Fed’s late attempt to get inflation under control is likely to push the economy over the edge. "The Fed’s main policy error was to ignore the rise in inflation last year and getting blindsided. This has set in motion a wage-price spiral that will be very difficult to reverse without hiking the economy into recession," said the Rabo Bank report on 11 April.
MINT PREMIUM See All
Sharing a similar concern, Alan McIntosh, Chief Investment Strategist at investment management firm Quilter Cheviot said, "There is much speculation about whether recession is inevitable as a result of interest rates going up." According to McIntosh, there is a growing determination among them to stop inflation becoming embedded in the system. "At the end of the day, higher prices and the resultant pressures on disposable incomes should of itself reduce demand. Hopefully central banks will pick up on this quickly enough to avoid the dreaded “policy error," he said in his note to clients on 11 April.
At its latest meeting, the Reserve Bank of India kept interest rates unchanged, however revised its inflation forecast for FY23 higher. After the latest CPI data, the clamour for an interest rate hike in June is getting louder among Indian stock market participants.
Further, global profit expectations have deteriorated to weakest levels since March 2020. Investors should note that previous instances of such low levels of profit growth include the bursting of the Dotcom bubble, Lehman Brothers bankruptcy, and Covid pandemic.