An aggressive rate hike is already the biggest danger for investors

1. Victor Blanco Moro

Economic prospects, higher risks and positioning. These are the three main contributions of the survey to managers that Bank of America prepares every month, and that helps to measure the pulse of the sentiment of large investors. This is a survey in which 371 managers participated , between December 3 and 9, a group of professionals who, together, manage assets of 434,000 million dollars.

The main novelty left by the latest survey, with respect to the previous ones, has to do on this occasion with the main dangers that investors perceive right now. In October, the fear of a rate hike appeared for the first time, and then it ranked as the fourth greatest danger in the eyes of those surveyed. In November it overtook the Covid, and came in second place, only behind the fear of an upturn in inflation, and in December it has already been crowned as the great fear for the managers surveyed.

42% of those surveyed consider it to be the greatest danger, compared to 22% who saw it that way in November. Now it is inflation that is of particular concern to 22% of investors. Also, it becomes clear again that the Covid has not disappeared from the minds of investors , since there has been an increase in concern, becoming, again, the third greatest danger, with 15% of those surveyed highlighting it. in this way. The increase in cases, with the arrival of the new omicron variant, has been felt in the results of the survey.

Two Fed hikes in 2022

The fear of aggressive rate hikes by central banks has a clear protagonist: the Federal Reserve (Fed). The European Central Bank (ECB) keeps repeating that inflation will be transitory, but its US counterpart is already acknowledging the possibility that this is not the case, and is preparing to raise interest rates.

What's more, managers are increasingly clear that the institution chaired by Jerome Powell will carry out two interest rate hikes next year. I already expected it in November, but then 39% of those surveyed believed it (it was the majority option), while now 49% already expect it that way.

As for the pace of the withdrawal of stimuli by the institution, for the first time the survey has asked managers when they consider that the tapering process, the gradual withdrawal of debt purchases, will end. It will be between March and May, in his opinion, with 45% of those surveyed pointing to the third month of the year, and around 22% pointing to May.

transitory inflation

It is true that the managers are concerned about inflation and about the consequences it may have on the monetary policies of the central banks (the normalization is a consequence of the rise in inflation that is taking place), but it is also true that most continue to consider that the rebound will be temporary.

Of course, less and less: the percentage of managers who expect it has fallen from 61% in November to 55% this month, and those who believe it will be permanent have risen one point, from 35% last month, up to 36% today.

current positioning

With this scenario on the table, investors have changed the configuration of their portfolios, increasing their exposure to liquidity to 36%, the largest overweight in this type of asset since May 2020. This rotation towards liquidity has been noticeable in portfolios' equity weight, the lowest since October 2020, with a net 46% of respondents (the percentage of those who say they are overweight, minus that of those who say they are underweight) overweight this asset class.

A part of the wealth that investors manage has also rotated towards other alternative assets, such as real estate, for which they maintain an overweight of 12% at the moment, the highest that has been seen since 2017. In raw materials they now maintain an overweight net of 19%, while fixed income remains the big underweight, with an underweight of 63%.

Regarding prospects, the survey has asked the managers which assets they believe will leave the highest returns next year, and they are clear: emerging equities, which, so far, in 2021 have not been good results, infected by fear of China and the rise in rates in the US. 35% of those surveyed highlight it as their favorite asset for 2022 , with the S&P 500 in second place, with 29% of managers opting for the American index.