Bank of America survey says 'dramatic shift' towards high-flying US stocks

Concerns over China’s sputtering economy has created a “dramatic shift” in investors’ equity allocation — a rush toward the US and an exodus from emerging markets, Bank of America’s (BofA) latest global fund manager survey showed.

BofA said the “avoid China” theme has become one of the biggest convictions among the surveyed investors with $616 billion in assets under management. A net zero per cent of the lot expect stronger economic growth for the country in the near future, a massive reversal from 78 per cent in February this year, and the lowest since the lockdown lows of last year. The trend is another signal of China’s declining heft in the global money pool. Doubts over the investability of Chinese equities have gathered steam as Beijing’s efforts to restore confidence have limited impact and as the West steps up oversight of exposure to Asia’s largest economy.

That’s had an impact on emerging markets equity allocation, which fell to a net 9 per cent overweight in September from 34 per cent, the lowest reading since November 2022. In contrast, allocation to US equities rose 29 percentage points to a net 7 per cent overweight — the first overweight read­ing since August last year, according to the survey. 

US equities have outperformed global peers this year, with the S&P 500 Index rising 17 per cent. Meanwhile, the MSCI Emerging Markets Index has only gained 2 per cent.

What’s more, readings from data showed that sentiment about China was more bearish than it was in September last year — just before China reopened following Covid curbs. Investors have also turned skeptical about the possibility of any stimulus that will boost China’s economy: just 15 per cent expect a policy “bazooka.” 

And, Chinese real estate is now seen as the number one source for the next global credit event.

More broadly, investors continue to warm up to the idea that the global economy will avoid a recession, with 74 per cent of participants seeing either a “soft” or “no” landing, compared with only 21 per cent expecting a “hard” landing. That said, they are still pessimistic: 53 per cent are bracing for a weaker economy over the next 12 months, up from 45 per cent in August.