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Apart from the vaccine, a key cue that has been aiding investor sentiment is another round of relief package from the US.
Apart from the vaccine, a key cue that has been aiding investor sentiment is another round of relief package from the US.

Beware the exuberance of 2020’s most bullish fund manager survey

In anticipation of quicker economic recovery, equities may have rallied ahead of themselves, ignoring risks

The latest BofA Securities survey shows that global fund managers turned the “most bullish" in November than they have been throughout 2020.

Those surveyed now expect an effective covid-19 vaccine to arrive in January 2021, a month earlier than previously anticipated.

With that, global growth and profit optimism soared to a 20-year high in November, according to the survey.

That said, a second wave of covid-19 outbreaks remains the biggest risk. In fact, the percentage of respondents wary of this rose from 34% in October to 41% in November, showed the report.

Simply put, in anticipation of quicker economic recovery, equities may have rallied ahead of themselves, ignoring the downside risks.

Party poopers
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Party poopers

The MSCI World index hit its lifetime high of 2,564 on 17 November. The MSCI Emerging Market index is still away from its all-time high, but has recovered to pre-covid levels. With markets in a jolly mood, there is also a fair amount of complacency among investors. Fear gauge CBOE VIX is currently at a level of 27, much lower than the peak of 53.54 seen in March.

Little wonder, BofA’s chief investment strategist Michael Hartnett suggests investors to sell on the vaccine news.

“The market’s shift can continue in Q4, but we say ‘sell the vaccine’ in coming weeks/months as we think we are close to ‘full bull’," said the survey report.

Analysts say the pace at which companies are working on the vaccine is commendable. But there are challenges from storage, delivery and distribution on a massive scale, which the market is not taking cognizance of, they add.

“The analogy I have been using since Pfizer’s announcement is that it represents a light at the end of the tunnel. However, given the rampant resurgence in the virus case count, hospitalizations and deaths, we remain in the dark depths of the tunnel. As good as the vaccine news is—from both Pfizer and Moderna—they are not the perfect elixir for what ails us, either from a health or economic perspective," said Liz Ann Sonders, chief investment strategist at US-based Charles Schwab & Co., in her blog on 16 November.

Apart from the vaccine, an important cue that has been aiding investors’ sentiment is another round of relief package from the US. However, with the US election overhang still underway, its timing and magnitude remain uncertain.

In his latest weekly blog, Bob Doll, senior portfolio strategist at Nuveen Asset Management, said, “The data suggest economic growth rates around the world peaked in early October and have since declined, especially in the euro area. The economy desperately needs more support. If it doesn’t get it, that would represent a headwind for stocks."

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