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The survey shows fewer fund managers fear a prolonged recession. Photo: Hemant Mishra/Mint
The survey shows fewer fund managers fear a prolonged recession. Photo: Hemant Mishra/Mint

Global fund managers reduce cash levels but find equities overvalued

  • About 78% of the fund managers surveyed see markets most overvalued since 1998
  • Around 49% reckon a possible second wave of infections is the top “tail risk”

MUMBAI: Global fund managers are gradually betting more on equities as sentiments are past their ‘peak pessimism’ with growth expectations rising in June, the latest Bank of America Merrill Lynch Fund managers survey showed.

Cash levels have dropped from 5.7% to 4.7% in May in one of the biggest drops since August 2009. This shows that fund managers have been deploying more of their cash. Interestingly, this is being led by institutional investors and not by retail investors.

Even so, the sharp rise in equity prices across the globe has made fund managers wary. In fact, a record number of fund managers think that stock markets are most overvalued. About 78% of the fund managers surveyed see markets most overvalued since 1998. Around 49% reckon a possible second wave of infections is the top “tail risk".

Global equities have rallied sharply since its lowest levels in March. In fact, the S&P 500 is up nearly 40% even as the US economic conditions are more fragile than before. The survey also reveals that only about 18% believe there will be a V-shaped recovery.

In his recent semi-annual monetary policy testimony US Fed chairman sounded a cautionary note saying that while the recent opening up of the economy is encouraging, it is still a long way from “normality".

As such, the markets are rising even when the US economy is going through a tough grind. The survey reveals that fund managers have raised growth expectations only modestly by 23 percentage points.

In fact, post the pandemic, most fund managers don’t expect a revival in the Purchasing Managers Index till October.

India’s May manufacturing PMI at 30.8 was also way below the 50 mark, which shows the economy is an expansion mode. But it has shown a marginal uptick from the lows of 27.4 in April.

Besides, the latest business activity data shows an improvement in the ground. “E-way bill generation is now down 25% YoY (vs -53% in May, -90% in early May), and updated Vahan data shows auto registrations down 80% in May, and down 55-60% in June," said a recent Credit Suisse India note.

On a positive note, the survey also reveals that fewer fund managers fear a prolonged recession. As against 93% of the respondents worried about a recession in April, only about 46% fear a recession now. This is a big jump and shows that fund managers are gaining more confidence in the economic recovery.

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