Global fund managers are showing increasing anxiety, with market sentiment declining sharply. According to Bank of America’s latest global fund manager survey, the bullish market sentiment seen earlier in the year has waned significantly. Cash levels held by these managers have jumped from 3.4 per cent to 4.3 per cent, marking the largest monthly increase since the COVID-19 pandemic. Global growth expectations have also plummeted, with only 7 per cent of managers anticipating stronger growth, a stark contrast to the 39 per cent in February. Overall fundie sentiment is at a six-month low.
The escalating conflict in Iran is a major factor contributing to this shift. Geopolitical risks have now overtaken artificial intelligence as the primary concern for investors. Persistent worries surrounding private equity and private credit markets, viewed as potential sources of systemic credit events, are further fuelling unease. Despite the downturn in sentiment, fund managers’ net allocation to equities remains at a relatively healthy 37 per cent.
According to Bank of America strategist Michael Hartnett, while current conditions are not as bearish as during the pandemic or the Ukraine invasion, the changing sentiment could present a contrarian buying opportunity. The direction of the S&P 500, currently hovering around 6716 points, will likely depend on oil price movements, which in turn hinge on the reopening of the Strait of Hormuz. Brent crude has already surged to a three-year high, exceeding $US103 a barrel.
Billionaire investor Ray Dalio believes the conflict has broader implications, potentially testing America’s position as a global power. He contends that control over the Strait of Hormuz is crucial and that any perceived loss of control by the US could have far-reaching consequences, impacting markets and the geopolitical landscape. Dalio suggests that a weakened American presence could mirror historical events such as the Suez Crisis, potentially affecting debt, currency, and gold markets.
