The survey of fund managers found that 34% of global investors now expect below-trend growth and above-trend inflation over the coming year, up from 20% in last month’s survey.
The 34% reading was the highest in almost ten years and coincided with what BofA called a collapse in expectations regarding global growth.
Subtracting the percentage of survey respondents expecting the economy to weaken from the percentage of those expecting it to strengthen gives a reading of -6, which is the most pessimistic reading since March 2020, when the markets started panicking about the coronavirus pandemic.
The macro gloom is less severe in Europe, where the reading is +24% but this is less than half the previous month’s value and way down on the peak of +92% seen in June.
Investors are increasingly concerned about inflation, BofA said, with 48% of respondents to the European fund manager survey seeing it as the biggest tail risk for markets, which is twice the level of September.
On the plus side, Covid fears “have all but disappeared” with just 3% of respondents citing the pandemic as the main thing keeping them awake at night.
Furthermore, although inflation fears are rising among the fund management community, most investors still see the inflation threat as being transitory, although that conviction is wavering. A net 20% (i.e. pros minus cons) of survey respondents believe the spike in inflation is merely a blip, down from 41% in September.
Investors remain bullish on European equities, BofA reported, with 65% of survey respondents expecting the rally to continue until next year, up from 58% who had an optimistic view last month.
European banks seem to be the flavour of the month, with a net 46% of respondents admitting to an overweight position in the sector.