Investors’ Expectations of 2015 U.S. Rate Hike Are Receding

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Signs Emerge That Gloom Over China Could Be Lifting

Investors are expressing growing skepticism that the U.S. Federal Reserve (Fed) will raise rates this year amid fragility in the global economy and earnings, according to the BofA Merrill Lynch Fund Manager Survey for October.

  • Fewer than half (47 percent) of investors believe the Fed will raise rates in 2015, down from 58 percent in September.
  • A net 19 percent of the panel says global fiscal policy is too restrictive.
  • Cash balances fell to 5.1 percent of portfolios, down from 5.5 percent last month, but remain above historic average levels.
  • A growing majority of investors (net 26 percent) say that corporate operating margins will decrease in the coming year, up from a net 18 percent.
  • Short Emerging Market Equities was named the most crowded trade in October by 23 percent of the panel, up from 20 percent.
  • China is seen as the greatest “tail risk” by 39 percent of the panel, down from 54 percent in September, while pessimism over Chinese equities eased.

“As investors debate the timing of a rate hike, they should be anticipating a massive policy shift in the U.S., Europe and Japan from QE to fiscal stimulus in 2016,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

An overall total of 209 panelists with US$512 billion of assets under management participated in the survey from October 2–8, 2015. A total of 164 managers, managing US$401 billion, participated in the global survey. A total of 102 managers, managing US$213 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.

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