The possibility of the world economy entering into a recession has been highlighted by other brokerages as well. Analysts at Jefferies, for instance, see the prospects of a downturn rising. Manufacturing PMI declined from 56.4 in August to 52.6 in September, the lowest level since August 2016, showed data. The manufacturing PMI also declined from 49.1 in August to a 10-year low of 47.8 in September.
“If the Institute for Supply Management (ISM) manufacturing PMI gave a false recession signal in 2015/2016, it remains the case that last week’s downturn in the ISM non-manufacturing PMI has made the chart look more negative from a growth perspective than was the case in 2016, suggesting that the prospects for a more clear-cut downturn are rising,” wrote Christopher Wood, global head of equity strategy at Jefferies in his latest weekly note to investors, GREED & fear.
According to BofAML, trade war, monetary policy impotence, bond market bubble and a credit event are some of the other 'tail risks' that the fund managers seem to be wary about. 18 per cent fund managers expect short-term rates to rise over 12 months, a strong reversal from September 2018 when 87 per cent expected higher short-term rates.
“Investors remain bearish but we are seeing signs of green shoots. If concerns about the trade war and Brexit are unrealised, sentiment is likely to improve, validating our bullish tactical views,” said Michael Hartnett, chief investment strategist at BofAML.
Despite the overall bearish sentiment among fund managers, allocation to global equities
inched higher by 5ppt from September 2019 to net 1 per cent overweight. However, allocation to US equities
slipped 2ppt to net 15 per cent overweight, making it still the most preferred region amongst FMS investors.
Global earnings per share (EPS) expectation remained bearish, despite improving 10ppt in October to net 35 per cent of investors saying they expect profits to deteriorate over the next year. As per October survey, 43 per cent investors wanted corporates to spend cash on improving their balance sheets, while 39 per cent preferred they invest in capex. Only 14 per cent wanted corporates to return cash to shareholders.
Among sectors, investors remained most overweight consumer staples globally since May 2013 and most underweight materials since February 2016, highlighting a huge skew toward deflation versus inflation. As a strategy, investors rotated into defensives plays like healthcare and consumer discretionary in October and pulled out of cyclicals like materials and banks, the survey findings showed.