The Tide Is Low

The Tide Is Low

almost 5 years ago1 min

Mentioned in story

Bank of America has once again surveyed hundreds of investment managers – stewarding a cool $664 billion of assets – on their April market views. Most think both growth and interest rates are heading south; and so they’re buying stocks in “defensive” sectors like utilities and holding onto their cash 🛡️

Two thirds of investors surveyed think that economic growth, inflation – and, by extension, interest rates – will remain low or fall further. This “secular stagnation” outlook has led investors to sell bank stocks (here’s why) and European shares, where the growth slowdown is likely to be even more pronounced.

Investors are braced for low growth
Investors are braced for low growth

But they’re not too worried about a recession for the time being. 70% of investors don’t expect one until at least late 2020 – and as for last month’s US yield curve inversion, 86% believe that this doesn’t signal an impending recession after all 🤷‍♀️

In fact, more investors now predict the global economy will improve over the next year than have done for some time…

Investors are getting perkier
Investors are getting perkier

😟 Debt. Lots of debt. According to Bank of America’s survey, 44% of investors think companies have too much debt on average and should “improve their balance sheets” – building more of a cash buffer for when things do head south. Only 16% of investors want yet more share buybacks and dividends.

That’s no moon… it’s a debt bubble
That’s no moon… it’s a debt bubble

For investors trying to avoid highly leveraged companies, it’s worth remembering that excessive debts are a bigger issue for American firms than European ones, which have kept a greater proportion of their value in cold hard cash...

Cash as % of market cap (SXXP = STOXX Europe 600)
Cash as % of market cap (SXXP = STOXX Europe 600)

But then again, those same European companies are the ones more exposed to a slowdown. ¡Ay, caramba!

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