Investors are shedding cash and piling into risk assets as they seek to “buy the reopening,” according to new research from Bank of America.
The bank’s latest survey of fund managers found that investor optimism has “skyrocketed” this month following news that coronavirus vaccines from Pfizer and Moderna had proven effective in clinical trials. The poll ended on December 10, after UK regulators had granted emergency authorization to the Pfizer-BioNTech vaccine but one day before the U.S. Food and Drug Administration did the same.
According to BofA Securities, fund managers have responded to the vaccine news by increasing allocations to equities and commodities and decreasing cash holdings. In fact, the surveyed investors reported that they were underweight cash for the first time since May 2013.
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Most investors said they believed the vaccine would start having a positive impact on economic activity within the first half of next year, with the average respondent predicting that the turn-around would occur by May 2021.
These vaccine hopes were accompanied by higher expectations for profit and economic growth, with a net 78 percent of respondents expecting corporate earnings to improve — the highest proportion in the survey’s history.
Likewise, investor expectations for above-trend growth and low inflation rose to what BofA analysts described as an “uber-Goldilocks view,” with fund managers more optimistic now than they were during the recovery from the 2008 financial crisis.
Seventy percent of investors said that the global economy was now in an early cycle, the highest proportion since January 2010. Meanwhile, only 12 percent believed they were still in a recession — a “key recovery milestone,” according to BofA.
While Covid-19 remained the largest tail risk, according to fund managers, the proportion of respondents who cited it as the biggest risk fell 11 percentage points from November. Meanwhile, investors expressed increased concerns about inflation and the risk of fiscal policy dragging down growth.