Stock market professionals fear inflation more than corona

According to a recent survey, fund managers and asset managers see the risk of sharply rising consumer prices and interest rates as the greatest threat to the financial markets. The fear of the consequences of the pandemic is almost fading into the background.

Turbulent: View of a display board of the Frankfurt Stock Exchange

Rand a year after the pandemic broke out, the expectations and risk assessments of asset managers around the world have changed significantly. Most no longer consider Corona to be currently the greatest risk on the capital markets, although the number of infections is rising again significantly in many countries and comparatively few people are still vaccinated. At least that’s what a Bank of America poll says.

The 220 fund managers surveyed, who manage a total of around $ 630 billion in the world, now rate higher-than-expected inflation as the greatest market risk at the moment. This is what 37 percent of the surveyed asset managers say.

In second place followed a violent price reaction on the bond markets with a share of 35 percent. For the first time since February 2020, the corona risk – and therefore the sluggish progress of vaccinations – is no longer number one in the monthly survey of the greatest market risks in the opinion of these experts. The survey value for Corona has even halved from just under 30 percent in February. This is followed by the bursting of a price bubble on Wall Street, higher taxes or more stringent regulations.

Steep down, then up

The majority of the fund managers surveyed now consider a V-shaped economic trend to be probable, with the initially steep slide and the rapid subsequent strong recovery, but also associated with a jump in inflation expectations. It is more important to these investors that companies reinvest free funds than buying back shares or reducing debt.

The changed expectations are also reflected in investment behavior. Cyclical, i.e. cyclical investments, such as industrial stocks, are particularly in demand at the moment. It fits in with the fact that these fund managers are invested more heavily in raw materials than ever before. Emerging markets are also popular. By contrast, exposure to technology stocks has fallen more than it has been in 15 years. On average, technology stocks in the managed portfolios have the lowest overweight since 2009. In contrast, the fund managers surveyed are now more heavily invested in bank stocks than they have been for three years.

Overall, these investors are betting on rising share prices and falling bond prices. Despite their declining interest in technology stocks, the bet on rising prices in this area is currently the most active trading strategy, ahead of Bitcoin or sustainable investments.

The fund managers are holding slightly more cash than they did in February. The average cash ratio of their portfolios is still comparatively low with an average increase from 3.8 percent to 4 percent in March, according to Bank of America. This remains a technical sell signal within this analysis. In other words, the fund managers are heavily invested.