Two-Thirds of Fund Managers Predict Global Economy Will Enter Stagflation

by Park Pyunghee

Published 13 Apr.2022 10:21(KST)

BOA March Survey Results... Highest Since August 2008 Just Before Lehman Brothers Bankruptcy

Photo by AFP Yonhap News

[Asia Economy Reporter Park Byung-hee] According to a survey by the U.S. bank Bank of America (BOA), two-thirds of fund managers responded that they expect the global economy to fall into stagflation, major foreign media reported on the 12th (local time).

The proportion of respondents anticipating stagflation was the highest since August 2008, just before the U.S. investment bank Lehman Brothers went bankrupt. BOA conducted the survey targeting 292 pension fund, insurance company, asset management, and hedge fund managers. The total assets under their management amounted to $833 billion.

The percentage of respondents who said the global economy would worsen in one year was 71 percentage points higher than those who said it would improve. This was the largest gap since BOA has been collecting such survey data since 1995.

Fund managers expressed greater concern about the immediate surge in prices than the widespread impact that the Ukraine war might cause.

The consumer price inflation rate for March, released by the U.S. Department of Labor on the same day, recorded 8.5%, the highest since 1981. As inflation risks escalate, the representative safe asset, U.S. Treasury bonds, has recently struggled to maintain strength.

In the 10-year U.S. Treasury auction conducted by the U.S. Treasury Department on the same day, the bid-to-cover ratio was 2.43 to 1, lower than the six-month average of 2.5 to 1.

Fund managers also predicted that corporate earnings forecasts could be sharply reduced and that financial market volatility might return to levels seen in March 2020, during the early stages of the COVID-19 pandemic, or during the 2008 global financial crisis.

The asset that fund managers ordered to increase the most in asset allocation was cash. This was followed by commodities, healthcare stocks, and energy stocks. In the case of bonds, nearly 70% favored reducing their allocation.

Michael Hartnett, BOA’s Chief Investment Strategist, explained that despite the sharp deterioration in economic outlook, fund managers are still maintaining an overweight position in equities, showing a mismatch between outlook and asset allocation.