Investors are less gloomy on growth over China: BofA survey

Investors are turning less negative on the global growth outlook for next year amid bets on a stronger Chinese economy, according to Bank of America Corp.'s latest fund manager survey.

Although the macro sentiment remains bearish, the number of investors expecting a weaker economy in 2023 fell to 69 per cent from 73 per cent last month, according to the survey of 281 fund managers overseeing US$728 billion in assets. About three-quarters of participants expect stronger growth in China as it reopens from COVID restrictions, a jump from just 13 per cent in November and the most positive outlook since May 2021, the survey showed.

Inflation concerns are also tapering off, with a record 90 per cent of respondents expecting lower prices within the next 12 months, strategists led by Michael Hartnett wrote in a note dated Dec. 12.

But the outlook for corporate earnings remains gloomy and 91 per cent expect profit growth to deteriorate in 2023.

That has left investors more positive about bonds compared with stocks, with the relative positioning in equities over bonds already at its lowest since 2009.

About 27 per cent of the survey participants — canvassed from Dec. 2 to Dec. 8. — said government bonds will be the best-performing asset in 2023, followed by stocks at 25 per cent.

A two-month rally in global equities has faltered recently amid worries that signs of a resilient economy would keep the U.S. Federal Reserve hawkish for longer. Investors are focused on two imminent major clues about the outlook for rates this week: U.S. inflation data and the Fed's policy decision. Central banks in Europe and the U.K. are also meeting this week.

For 2023, market participants have said they expect equities to face a rough first half followed by a rebound in the second. A recent Bloomberg News survey of 134 global fund managers showed they're most concerned about a stagflation scenario of slowing growth and high inflation.

Bank of America's survey also found persistently high inflation and a deep global recession were viewed as the biggest tail risks for next year. Other concerns include hawkish central banks, worsening geopolitics and a systemic credit event.

Fund managers are bearish on European equities in the near term, with 88 per cent of participants in the bank's regional survey projecting downside for earnings amid slowing growth.

Other survey highlights include:

■ A net 68 per cent of investors say a recession is likely in the next 12 months, softening from 77 per cent in November;

■ More than half expect the U.S. dollar to depreciate the most — the biggest share since May 2006;

■ Cash levels decline to 5.9 per cent from 6.2 per cent amid improving risk sentiment;

■ Investors are most overweight health care relative to consumer discretionary since March 2006.