Risk sentiment is at its highest level since January 2022, Bank of America noted in its latest monthly global fund manager survey.
The results show a significant rise in optimism about global growth, the strongest since May 20, and record a historic increase in the commodity allocation. Equity holdings also rose to a net excess of 34%, matching their peak since January 2022, while the cash share fell to 4.2% from 4.4% last month.
“The bullish sentiment is not quite at close-your-eyes-and-sell levels, but risk assets are tactically much more vulnerable to bad news than good,” Bank of America strategists wrote.
The survey points to a change in investor sentiment on the macroeconomic outlook, with 11% of respondents now expecting the economy to strengthen over the next 12 months, the first net bullish forecast since December 2021.
Additionally, 78% of those surveyed believe a global recession is unlikely, with expectations for a “no landing” jumping to 36% from just 7% in January, although the forecast for a “soft landing” has dropped to 54% and expectations for a hard landing remain low at 7 %.
The survey also revealed the top risks facing markets, with inflation ranked as the top concern (41%), followed by geopolitical concerns (24%).
Key triggers that could trigger a risk-off move include the unemployment rate reaching 4.5% for 33% of managers, the 10-year US Treasury yield rising above 4.5% for 30% and oil prices rising above $100 per barrel for 29%. .
There has been a marked rotation in investment preferences, with February 2022 seeing the largest ever increase in investment in commodities and increased allocations to energy, industrials and European markets, while moving away from cash, emerging markets and consumer goods.
The results showed that the most loaded trades are currently long Mag 7 with a 52% share and short China with a 16% share.