Portfolio

Coronavirus replaces trade war as risk for equities, BofA says

By Sean Farrell

Date: Tuesday 18 Feb 2020

Coronavirus replaces trade war as risk for equities, BofA says

(Sharecast News) - The coronavirus has replaced disputes over trade as one of the biggest risks to stock markets as optimism among fund managers weakens, a Bank of America survey showed.
The three big "tail risks" reported by asset managers in February were the US presidential election, cited by 26% of respondents as the biggest risk; the end of the bond bubble (22%) and coronavirus (21%), BofA found in its monthly survey.

The bank said the trade war between the US and China dropped to number four and was no longer seen as a risk for investors.

Global growth expectations were positive but halved to 18% from 36% in January. The decline was caused by a reversal in expectations for China to -53% from 50%. Respondents forecast China GDP growth in the next three years would be 5.2% - the lowest since September 2015.

The survey "shows investor sentiment less bullish than in January [and] full capitulation into QE-forever", BofA's Michael Hartnett wrote. Rising fears about the effect of coronavirus on Chinese growth were behind the first reduction in the survey's global growth, profits and inflation expectations since October 2019.

Despite gloomier sentiment about the wider economy fund managers remained upbeat on prospects for US equities. They expect the S&P 500 index to peak at 3,740 - the highest since the question was first asked in June 2018.

The bullish sentiment is based partly on the belief US interest rates will stay within the current 1.4%-2% range. The mood prompted a switch to shares seen as "deflation winners" with growth shares expected to outperform value stocks.

In Europe risk appetite was affected by the perceived danger to financial stability from emerging markets. Eurozone expectations for profits, inflation and growth reduced, reducing the Eurozone equities allocation to net 19% overweight. The UK remained the most underweight region at net 14% underweight.

BofA surveyed 221 fund managers managing assets of $676bn between 6 and 13 February.

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