To The Moon

Bank of America’s monthly Fund Managers Survey (sometimes simply abbreviated to “FMS”) is an interesting barometer of major institutional players around the world. This month, 251 participants with $666 billion in Assets Under Management (AUM) responded to the survey. The compiled results are both fascinating and align closely with the findings of most past articles published here.

Overall, survey respondents are taking the lowest level of risk in their investment decisions since the Global Financial Crisis (GFC):

The shadow of the GFC looms large even in the bond portfolios held by the respondents. The net percentage of respondents opining that they’re overweight in (or “hold too much of”) bonds are at highs unseen since March 2009, when the GFC was in full swing and equity markets were at deep lows.

Given the rising concerns of commercial real estate being increasingly unviable given high debt as well as vacancy rates, survey respondents reveal that they’re underweight in (or “hold less of”) real estate at a level comparable to that of December 2008 when the subprime mortgage market was collapsing.

The banking crisis rules the roost in terms of top “tail risk” concerns, although this has slightly abated from April. This is likely on account of the depositor rescue program which is now increasingly likely to be applicable on all failing regional banks.

Interestingly, while inflation also sees a slight step down from last month, worsening geopolitics causing an additional strain has seen a slight uptick. When tied with the idea of very low self-reported risk levels being assumed, this would mean that inflation-related measures are generally being locked into place. One such measure: an increasing focus on “Big Tech”.

Big Tech - such as $Alphabet(GOOG)$, $Microsoft(MSFT)$ and $Apple(AAPL)$ - are increasingly being viewed as the equivalent of “Treasury Stocks”, i.e. they represent companies that are far too ubiquitous and central to technology and business to completely vanish in a short period of time. In fact, being bearish on American banks and bullish on “Big Tech” stocks are both some of the most overcrowded positions held by the survey’s respondents.

Also interesting is the retreat from EM (“Emerging Market”) stocks. For decades now, investing into EM stocks simply meant a dominant investment in Chinese equities. This outlook is seeing a net change: expectations of the Chinese economy maintaining growth is now being deemed unlikely, despite a brief bump due to post-COVID reopening news.

Also persistent (and rising) is the net belief that the recession is inevitable, regardless of the fact that the U.S. Federal Reserve and Treasury are holding off on calling it.

Overall, growth expectations are treading lows not seen since the GFC:

With data reminiscent of the GFC presenting itself in such stark contrast, along with the added pressure of geopolitical risks on the global supply chains – particularly in the Western Hemisphere – it would serve to be cautious with fuzzy growth narratives that run counter to the data.

For investors looking for tactical trading opportunities, there are a number of Exchange-Traded Products (ETPs) that could be considered. For instance:

• $SP5Y gives leveraged exposure to the upside of the S&P 500 ( $SPDR S&P 500 ETF Trust(SPY)$) while $LS -3X SHORT SPY ETP(SPYS.UK)$ does the same on the downside.

• $CHI3 gives leveraged exposure to the upside of the Chinese marker while $LS -3X SHORT CHINA ETP(CHNS.UK)$ does the same on the downside.

• $XLF3 gives leveraged exposure to the upside of to US financial services while $XL3S does the same on the downside.

For articles on broader economic events that are tangential to tactical market movements, visit asianomics.substack.com. Latest articles include my interview with Hankyung TV (South Korea’s largest business news channel/newspaper) wherein the outlook for Korean markets was discussed as well another article describing in full the rationale behind my comments about the ongoing banking crisis that was reported on MarketWatch and other publications.