Investor pessimism hits 12-month low in February, BofA says
The so-called 'pain trade' in risk assets was still up because investors around the world continued to exhibit caution, the results of BofA's monthly fund manager survey found.
"Investors least pessimistic since Feb'22 but nowhere near optimistic enough to say positioning a sell catalyst," the investment bank's strategists said in a research note sent to clients.
In particular, they noted how 68% of investors believed that the reopening of China's economy was inflationary, two-thirds were anticipating a depreciation in the US dollar and the same proportion believed recent gains were only a bear market rally.
Of the survey's respondents, 65% believed that the yield curve would steepen and 64% believed no truce in the Russia-Ukraine war was likely in 2023.
BofA strategists also noted the "dovish optimism" as regarded inflation and the prospects for easier policy from the Federal Reserve.
The most investors since March 2020 were anticipating interest rate cuts over the next 12 months and the most since September 2021 a steeper yield curve.
Regarding the 'most crowded' trades, long US dollar was no longer it, replaced by "long China stocks" and "long investment grade bonds".
The biggest overweight position among investors was cash, with 42%, while 31% were underweight equities.
Exposure to emerging market stocks however had recorded its biggest three-month jump.
Investors had also shifted to underweight defensives versus cyclicals for the first time since April 2022, BofA noted.
BofA also identified "long stocks, US, tech and short cash, China, banks" among the contrarian trades.