Fund manager expectations for economic growth have fallen to their lowest level since early 2016, as new tariffs on international trade become an increasing cause for concern.
Sixty percent of managers surveyed by Bank of America Merrill Lynch between July 6 and July 12 cited trade war as the biggest risk facing stock markets, roughly double the proportion who said so a month ago.
According to BofA Merrill Lynch, this is the highest level of conviction survey respondents have had about a tail risk since 2012, during the European debt crisis.
“Investor sentiment is bearish this month, with survey respondents eyeing the risks from a possible trade war,” said Michael Hartnett, BofA Merrill Lynch’s chief investment strategist, in a statement.
Amid these concerns, expectations for global economic growth slumped to their lowest level since the February 2016 stock market correction. The majority of respondents also predicted that corporate earnings and profits would not improve over the next 12 months.
Among the managers surveyed, allocations to global equities fell to their lowest level since November 2016. In contrast, investments in U.S. equities reached a high last seen about 18 months ago.
In addition to threats against free trade, managers were increasingly concerned about monetary policy risk — specifically, that the U.S. Federal Reserve or European Central Bank would make a policy mistake in raising interest rates. Meanwhile, anxiety over the euro and emerging market debt eased over the last month.
More than 230 global fund managers responded to the BofA Merrill Lynch survey, representing $663 billion under management.