10 Things That Fund Managers Are Telling Us: BofA

The buyside panoramic view - Fund Management System

A fund manager is responsible for implementing a fund's investing strategy and managing its portfolio trading activities. BofA Securities, in its exclusive report talks about what Asia's biggest fund managers are saying about the global economy, inflation and markets.

1) Soft landing has labored its way into a consensus call now, but the outlook for the global economy remains tepid at best, with net 53% of the participants in the Global FMS gearing up for a weaker economy in the next 12 months - a lowest decile reading. The Asia FMS is more hopeful, with net 23% expecting a stronger economy in the next 12 months, down from 39% in August but higher than 6% in June.

2) Following a year of global disinflation, inflation expectations in Asia have been reset to neutral as the stealth bull market in oil puts upward pressure on headline inflation. Tellingly, a wide breadth of countries are already seeing a considerable tick-up in prices.

3) Consistent with the view on inflation, the FMS professed a sea change in interest towards the energy sector, with a 36 ppt spike to a net 23% overweight allocation.

4) Earnings expectations for the region remain middle-of-the-road, with net 28% looking for a pick-up in the profits cycle in Asia in the next 12months. What makes it tricky, though, is a falling earnings revisions ratio (dragged down by China and Australia).

5) Valuations, on the other hand, are strikingly subdued. Net 54% of investors perceive the regional equities as undervalued, almost as acute as at the cycle-lows in January.

6) As a result, the outlook for APAC ex-Japan equities is quite soothing. A concentration of votes in the mid-to-high single digit band renders a positive skew to the profile, but there are hardly any takers for outsized price action on either side of the spectrum.

7) The FMS take on China continues to be insipid. Easing expectations abound but the sustained lack of a concerted action has pushed risk appetite to rock bottom. Panicked sentiment (see note) renders a re-test of the October-2022 lows in the equity markets unlikely, but the FMS continues to adhere to its structural de-rating view for China. Majority are looking to either play a wait-and-watch game (36%) or build risk gradually (36%), with 18% citing a preference for opportunities elsewhere.

8) The FMS maintains its favorable views on technology, with majority (net 56%) of the participants expecting an improvement in the semis cycle in the next 12 months.

9) Sector allocations are lined up accordingly, with technology (cited by net 49% of investors) and communication services (net 31% overweight) at the top of the pecking order. Within China too, internet and AI/semis grasp the bulk of investor mindshare. On the other hand, utilities (net 49% underweight) and real estate (38%) stay out of favor.

10) Country preferences are less pronounced, but similarly tilted in favor of tech-heavy South Korea (net 11% overweight) and Taiwan (4%), while Singapore (net 10% underweight) and Australia (8%) are the least favorite markets in the region.