Global fund managers are forecasting above-trend growth for the world economy this year, according to Bank of America's benchmark survey, and see the fastest inflation in more than a year as corporate profits rise.
More than half of those polled the January survey of 202 investors controlling around $739 billion in assets see global growth improving over the coming year, the highest rate since February 2018, As a result, equity allocations increased to a net 32% overweight, BofA noted, the highest in seventeen months. In fact, since August of last year, global equity allocation has risen from 12% underweight to this month's current tally, the biggest increase in nearly a decade.
Global corporate profit expectations, BofA said, jumped 14 percentage points from December to a 27% of respondents expecting corporate profits to improve over the next 12 months, the highest level since March 2018.
“Investors are bullish but not euphoric,” said BofA's chief investment strategist Michael Hartnett. “We stay irrationally bullish risk assets until peak positioning and peak liquidity incite a spike in global bond yields and ‘the big short’ opportunity.”
The growth projections, curiously, follow less than 24 hours after the International Monetary Fund trimmed its own forecasts for global GDP growth for this year and next, citing weakness in emerging market economies such as India that that Fund thinks will offset a near-term boost in trade from last week's phase one agreement between the U.S. and China.
In terms of inflation, BofA noted a 14 percentage point surge in consumer price acceleration expectations to a net 56%, the highest since November 2018.
And, given that a net 53% think the U.S. dollar is overvalued, the second highet recording of that assessment since 2002, investors could be concerned that rising food and energy prices will impact emerging market and developing economies more than they will in the United States.
Earlier this month, global food prices rose to the highest level in five years last month, according to the United Nations' FAO price index, suggesting corresponding increases in consumer inflation as oil holds near multi-month highs and the world's biggest economies show signs of sustained growth.
Perhaps unsurprisingly, given the forecasts for world inflation, a net 51% of the investors polled by BofA between January 9 and January 16 expect the yield difference between 3-month Treasury bill and 10-year Treasury notes to steepen over the coming year, but that reading is still down 11 percentage points from the November 2019 high.