In a significant move, global fund managers have recently reallocated their investments from emerging market equities to U.S. stocks, as revealed in Bank of America's latest monthly survey. The allocation to U.S. equities has surged by 29 percentage points in September, shifting from being underweight by 22 points to being overweight by 7 points—marking the first overweight position in 13 months. Conversely, the allocation to emerging markets has dropped by 25 points, resulting in a net 9% overweight position compared to a net 34% overweight position previously—the smallest since November.
Performance-wise, the S&P 500 has seen a substantial 17% increase this year, while the iShares MSCI Emerging Markets ETF has only experienced a modest 3% increase.
It seems that this shift away from emerging markets is largely driven by concerns regarding China. Another question posed in the survey discovered that the net percentage of fund managers anticipating a stronger Chinese economy in 12 months has dropped to zero, a significant decline from the high of 78% recorded in February. Notably, optimism towards the Chinese economy is currently lower than it was even before China reopened from COVID lockdowns.
However, these fund managers are cognizant of the fact that betting against China has become a popular trade, with short China equities being the second-most crowded trade, trailing only behind long big tech positions.
Overall, the general sentiment among fund managers remains neither strongly bullish nor bearish. The allocation to cash has slightly increased from 4.8% in August to 4.9%, which falls within the normal range of 4% to 5%. Nevertheless, this level is lower than the 6.3% recorded in October 2022.
When it comes to the global economy, two-thirds of fund managers anticipate a soft landing, while 21% expect a hard landing, and just 11% foresee a "no-landing" scenario.
Interestingly, even after the significant shift towards U.S. stocks, fund managers still maintain an overweight position in bonds, healthcare, and utilities, which are defensive stock sectors. Conversely, they are underweight in REITs, equities, and the eurozone.
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