The most recent BofA Securities monthly survey of global portfolio managers uncovered investors surprisingly bearish on global growth and, by extension, commodities.
BofA investment strategist Michael Hartnett noted that 48 per cent of managers expect a global economic recession by the end of the first quarter of 2024 and the attractiveness of growth-sensitive commodities has plummeted as a result.
In April of 2022, 35 per cent more managers were overweight than underweight the sector whereas now 15 per cent more managers are underweight. Mr. Hartnett reports that the rotation out of commodities over the last three months is the largest since March 2013.
Pessimism regarding China’s economic recovery is a big factor behind economic and commodity price bearishness. Only one in five institutional investors believes China’s economy will accelerate from here – this is down from four out of five in February.
Fund managers have responded to growth fears by shovelling assets towards megacap technology stocks, where profits are driven more by industry-specific secular trends and less dependent on the economy.
Portfolio manager pessimism is positive for investors in the sense that, already positioned for bad growth news, markets are unlikely to react overly negative when and if it actually occurs.
The biggest market moves will occur if the consensus is wrong and growth data surprise positively. In that case, managers will scramble to add equity exposure, emphasizing economically sensitive companies like commodity producers.
-- Scott Barlow, Globe and Mail market strategist
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What’s up in the days ahead
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Compiled by Globe Investor Staff