(Boursier.com) — One risk can hide another. A systemic credit event has replaced stubborn inflation as the main risk for the markets according to fund managers surveyed by Bank of America. In its monthly survey of 212 specialists managing $548 billion, and reported by ‘Bloomberg’, BoA explains that the most likely source of a credit event is the shadow banking sector in the United States, followed by debt. US companies and developed market real estate. A credit event was chosen by 31% of participants as the biggest threat to the markets.
Additionally, the poll, conducted March 10-16, shows investor sentiment is “close to levels of pessimism seen at 20-year lows,” according to BoA strategist Michael Hartnett. Manager positioning and sentiment are “the only key metrics in ‘surrender’ territory so far.”
In addition to credit risks, investors are increasingly concerned about the economy. The likelihood of a recession rises again for the first time since November, with the BofA survey showing that 42% of net participants expect a slowdown over the next 12 months. Meanwhile, stagflation expectations remained above 80% for a 10th consecutive month. In the history of the survey, “investors have never been so convinced of the economic outlook,” said Mr. Hartnett.
It should also be noted that the rotation of American equities towards Europe has accelerated this month, with fund managers being the most overweight in Europe compared to the United States since October 2017. Participants are also now in a ‘net underweight’ position in banks, with contagion risks within US regional banks pushing investors out of the sector at the fastest pace since Russia’s invasion of Ukraine.
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