Fund manager sentiment is close to GFC lows, finds BofA’s Global Fund Manager Survey

A contrarian ‘buy signal’ emerges after a historic collapse in sentiment this month.

The consensus for corporate earnings per share growth fell to the lowest since October 2008. Picture: AP

A contrarian “buy signal” has emerged from BofA’s Global Fund Manager Survey after a historic collapse in sentiment this month, according to the US investment bank.

Fund manager sentiment is close to GFC lows in terms of cash and corporate leverage amid the biggest drop in global growth expectations since the survey began in 1994.

“Investor sentiment has collapsed on the back of the coronavirus, oil shock, recession, and surging debt default risk,” says BofA chief investment strategist, Michael Hartnett.

BofA’s flagship sentiment index, the BofA Bull & Bear Indicator fell from 2.5 to 1.7, triggering its first contrarian “buy signal” for risk assets since August 2009.

It comes after a 30 per cent fall in Australian and global equities and some of the sharpest-ever shifts from bull to bear markets due to the prospect of global recession from attempts to stop coronavirus.

The survey of 183 panellists with $US571bn ($952bn) of assets under management also saw the fourth-largest ever monthly jump in the average cash balance, from 4.0 to 5.1 per cent.

The consensus for corporate earnings per share growth fell to the lowest since October 2008.

The number of investors that said fiscal policy is “too restrictive” rose to the most since December 2008, while a record number of investors said corporates are “over-leveraged” and 61 per cent want corporates to improve balance sheets, the most since June 2009.

The survey also saw the biggest monthly collapse in equity allocation ever, led by Eurozone and Emerging Markets allocations, while the sector allocation to banks fell to the lowest since July 2016, and for utilities and healthcare was the highest since the March quarter of 2009.

Mr Hartnett says the bottom line is that with extreme bear positioning coinciding with policy panic to offset recession, Wall St liquidity freezing and surging debt default risk, 31 central bank interest rate cuts year to date, more than $US4tn of promised global central bank liquidity promised, close to $2 trillion in fiscal stimulus, expanded commercial paper programs and coordinated fiscal expansion to restore battered “animal spirits”, sentiment is “bearish enough for positive asset price response.”

He does however offer the caveat that “contrarian sentiment signals can be too early” when “exogenous 2 standard deviation events” (a measure of dispersion) are at play.

He notes for example that the Bull & Bear Indicator gave a buy signal in July 2008 - two months before the collapse of Lehman Brothers on 15th September 2008.

Mr Hartnett also cautions that “the scale and impact of current health crisis unprecedented”, a sustained rally in risk assets “requires further macro and market policy moves and the belief that the virus is peaking in Europe and the US.”