Bank of America Finds Fund Managers Slashing Growth Outlook on Virus Woes

(Bloomberg) -- Fears that the coronavirus outbreak will hurt China’s economic prospects fueled a slump in investors’ global growth expectations, Bank of America Corp.’s survey showed.

A deterioration in the outlook for China saw bets for world economic expansion fall for the first time since October, in BofA’s poll conducted Feb. 6 through Feb. 13. A net 18% of respondents forecast stronger growth over the next 12 months versus 36% in January’s survey, according to a note.

Newsflow on the virus outbreak has whipsawed markets since the start of 2020, with Apple Inc.’s sales warning the latest sign that corporate and economic damage may be greater than expected. Still, risk assets have fared well in February and global stocks last week hit a new record high, boosted by mostly positive earnings reports and a dearth of alternatives to equities.

While the latest BofA survey showed investor sentiment less optimistic than in January, strategists led by Michael Hartnett said they stay “irrationally bullish.”

Polled fund managers expected upside for U.S. stocks, with the S&P 500 seen peaking at 3,470, or 2.7% above the Friday close. The bullish conviction is underscored by bets that 10-year U.S. Treasury yield will stay within the current 1.4% to 2% range in the first half of 2020.

Coronavirus appeared as the third-biggest tail risk in the survey after the bond bubble and U.S. presidential election.

BofA’s February global survey had 194 participants with $632 billion in assets under management.

Other survey results included:

• Investors continued reducing their exposure to cash, which fell to 4% in February, the lowest level since March 2013
• Net 54% of surveyed investors said U.S. dollar is overvalued, second-highest reading since 2002
• Net 6% of investors expect growth to outperform value stocks over next 12 months, the biggest jump in favor of stocks with higher earnings prospects since Dec. 2014 and highest reading since July 2008

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Namitha Jagadeesh, Jon Menon

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