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Investors withdraw from US and indicate strong hopes for China reopening in January

According to the latest Global Fund Manager survey by the Bank of America, cash levels fell from 5.9% in December 22 to 5.3% this month. 

This is still high given the 4.7% average since 1999, but the combination of expectation around peak rates and recession fears is causing the cash allocation to fall, BofA analysts said.

Allocation to US equities collapsed in January, with respondents stating that their net underweight in the asset class stood at 39%, the lowest since October 2005 (52%).

This was the biggest month-to-month widening in net underweight on US equities since records began. 

Investors reallocated towards EM stocks, increasing their net overweight to 26%, the highest since June 2021. 

BofA downgrades UK asset managers over recession risks and weak flows

They set a new peak for bullishness on Eurozone equities, surpassing the previous February 2022 high.

Investors flipped their allocation from a 10% net underweight in December to a 4% net overweight in January.

Macroeconomic sentiment remains bearish, but not as bearish as in the last quarter of 2022.

Over half of surveyed investors expect a weaker economy in the next 12 months, but this is the most optimistic they have been on global growth prospects in the past year.

Investors were also optimistic on the economic growth outlook for China.

Over 91% of respondents said they expect a stronger Chinese economy in January, up from 75% in December, 13% in November and 0% in August.

China’s population falls for the first time in six decades

For the first time since March 2020, investors anticipate there will be lower, rather than higher, short-term rates in the following 12 months, and believe monetary policy is too “restrictive”, which BofA analysts said is a call for the central banks to stop the tightening cycle.

Among the biggest tail risks for 2023, fund managers pointed to inflation staying high (34%), a deep global recession (20%), central banks staying hawkish (19%) and geopolitics worsening (13%).

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