Institutional Investors Turn Bullish About Economic Conditions Post-Pandemic

A recent survey by the Bank of America (BofA) indicates that COVID-19 is no longer the biggest risk among professional investors for the first time since the beginning of the pandemic about a year ago. Global fund managers surveyed no longer feel that the pandemic is the top tail risk, highlighting concerns such as a spike in inflation, volatility in bond yields, the rollout of the COVID-19 vaccine and a possible bubble on Wall Street as the leading tail risks.

93% of fund managers surveyed raised the possibility of inflation rising over the coming year – last month, this figure stood at 86%, which was the previous all-time high. Meanwhile, 48% of the respondents anticipate the global economy to post a V-shaped recovery, up from a mere 10% who felt this could be the case back in May 2020. Institutional investors have also turned increasingly bullish about the economic outlook, with 91% anticipating greater strength in the economy.

BofA had polled 220 investors managing around $630 billion worth of assets in early March for this survey, who revealed that the average cash balance has risen from 3.8% last month to 4% this month. In another sign of improving risk appetite, net exposure of hedge funds to equities has touched the highest levels seen since June last year even as their allocation towards commodities has soared to a record high.

Investors surveyed are also increasingly optimistic about the US equity market, with 55% calling it a late-stage bull market and 25% indicating it as an early-stage bull market. In addition, more than 50% of respondents forecast that value will overtake growth over the coming year.