Global fund managers 'super bearish'; cash allocation at 20-year high: BofA

Global fund managers remained 'super bearish' in September with their net allocation to cash hitting the highest level since September 2001 – the most in over two decades – suggested BofA Global Fund Manager Survey for September. 240 panelists with $695 billion worth of assets under management (AUM) participated in the August survey that was held between September 2 and 8.

Global growth expectations, the survey findings suggest, were near all-time lows with a net 72 per cent respondents expecting a weaker economy in 2023, and a net 79 per cent expected inflation to be lower in the next 12 months. The most crowded trade, according to the survey findings, was long US dollar, with 56 per cent of global fund managers allocating to this asset class. SEE CHART HERE

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The biggest tail risk to financial markets, according to the global fund managers, was the fear that inflation stayed high, followed by hawkish central bank policies, geopolitics and the possibility of a global recession. CHECK HERE

"In September, FMS investors cut their net underweight in stocks further to -52 per cent (from -26 per cent), while pushing longs to defensives to 53 per cent, highest since February 2009. Cash levels jumped from 5.7 per cent to 6.1 per cent month-on-month (MoM) as record net 60 per cent investors took lower-than-normal risk," the BofA survey findings suggest.

Meanwhile, global equity markets were roiled on Wednesday after US consumer price inflation (CPI) data showed an unexpected rise to 8.3 per cent, which in turn has rekindled the prospects of a more aggressive monetary policy tightening by the US Federal Reserve (US Fed) in its policy meeting later in September.

"Markets are indeed now pricing for a terminal Fed Funds rate of over 4.25 per cent. Moreover, they are not just expecting a 75 basis point (bps) hike in September, but risks of 100 bps," said analysts at Rabobank International in a note.

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The worse-than-expected CPI inflation data in the US, despite cooling gas prices, was a surprise. Now, the market fears that inflation is getting entrenched and an ultra-hawkish US Fed might trigger a hard landing for the US economy, believes V K Vijayakumar, chief investment strategist at Geojit Financial Services.

"This thinking too, might change when new data emerges. The 'buy on dips'' strategy has been working very well in India for over a month now; but an aggressive 'buy on a dip' is better avoided right now. Domestic-economy facing stocks like high quality financials, capital goods, autos, segments of FMCG and telecom are relatively safe bets. Global economy-facing stocks like information technology (IT) and metals are likely to be under pressure," he said.

Technically, the catchment area for the Nifty50, according to Anand James, chief market strategist at Geojit Financial Services is 17,860. A successful pull back above this region, he said, could set the 18,600 trajectory back in motion.

"Nifty's inability to do so could signal extended downside toward 17,520 levels in the next few days, but a collapse is still not among the favoured moves," James said.