Elevated levels of risk aversion akin to 2008 global meltdown: BofA survey

Hawkish central banks, recession risks from inflation, and the Russia-Ukraine conflict are the biggest ‘tail risks’ for equity markets, reveals the May BofA Global Fund Manager Survey (FMS). Meanwhile, Covid-19 — which had ruled the charts as the biggest risk between 2020 and 2021 — has slipped down the pecking order, with only a net 1 per cent of respondents seeing it as a threat.

Over the past decades, over a dozen tail risks have spooked investors, observes FMS. “The dominant concerns of investors since 2011 have been Eurozone debt and potential breakdown, Chinese growth, populism, quantitative tightening and trade wars, global coronavirus, now inflation/bond tantrum and central bank rate hikes,” says BofA in a note.

Although concerns have governed the list, only a few have threatened to be a risk to financial market stability. However, the latest survey reveals that investors are a worried lot.

“Our FMS Financial Market Stability Risks Indicator is currently at 7.5 — a record high. Elevated levels of risk aversion comparable to prior crisis moments (such as global financial crisis, Covid shock). The high perceived risk to financial market stability also points to a further decline in equity prices,” adds the note.