Chart beat: Inflation can be a party pooper, say fund managers

Global fund managers are increasingly worried about elevated inflation  (REUTERS/Babu/File Photo)
Global fund managers are increasingly worried about elevated inflation (REUTERS/Babu/File Photo)

Summary

  • Higher inflation is seen as the biggest tail risk to portfolios as a scenario of increased inflation could dampen rate cut hopes of equity investors.

Global growth optimism has peaked since February 2022 as fund managers anticipate the global economy to avoid a recession, showed the latest BofA Global Fund Manager Survey. However, global fund managers are increasingly worried about elevated inflation playing party pooper for investor sentiment. According to the survey report, higher inflation is seen as the biggest tail risk to portfolios as a scenario of increased inflation could dampen rate cut hopes of equity investors. Geopolitics and a systemic credit event are considered as the next biggest risks. The following chart has more details.

Additionally, improved macro-outlook and reduced risk perception drove investors to take down their cash levels to 4.2% in February from 4.8% in January. This is a 55-basis points month-on-month drop. Notably, the BofA Global Fund Manager Survey cash rule triggers a "sell" signal when cash is at or below 4%.

 

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