Away from American banks – Newspaper Kommersant No. 48 (7493) of 03/22/2023

Portfolio managers are again talking about the risks of a global recession, showed a March survey by Bank of America (BofA). They fear that due to high dollar rates, US bank failures will continue and this will negatively affect the global economy and company profits. Under such conditions, portfolio managers increase the share of cash in their portfolios and give preference to shares of European companies and companies in developing countries.

International portfolio managers are alarmed by the US banking crisis and its implications for the global financial system. This is evidenced by the March survey conducted by BofA. The survey included 244 portfolio managers with $621 billion in assets under management. According to the survey, 31% of respondents identified credit and counterparty risks as key risks with unpredictable consequences for the global economy. As a result, the risk of high inflation, which has dominated over the past ten months, has dropped to second place in terms of significance from a share of 25%.

These changes were facilitated by the collapse of the American Silvergate Bank, Signature Bank and Silicon Valley Bank (SVB), which caused an increase in customer and investor distrust of banks not only in the US, but also in Europe. “If other banks have not also hedged the risks of a significant change in interest rates, then they may face the same problem as SVB, that is, at least with a cash gap, and even with bankruptcy. This will be fraught with an inability to fulfill financial obligations to clients and counterparties, which could trigger a wave of such events,” notes Oleg Syrovatkin, Leading Analyst of the Global Research Department at Otkritie Investments.

In such circumstances, portfolio managers’ expectations regarding the prospects for the global economy deteriorated sharply. According to the BofA survey, the number of managers who are confident that over the next 12 months the pace of global GDP growth will slow down is 51% higher than the number of those who do not expect such an outcome. A month earlier, there were only 35% more pessimists. In addition, for the first time since November 2022, the share of managers increased (to 42%), who do not exclude a recession.

As a result, managers increased the share of cash in their portfolios from 5.2% to 5.5%. At the same time, they actively changed the structure of their portfolios. In particular, they reduced investments in bank shares at a record pace since February last year. In addition, in March, the number of portfolios in which the share of US stocks was below the indicative level was 44% higher than the number of those in which it was higher. This is the worst figure in 18 years. “Forward indicators of economic activity in the US, even before the banking crisis began, indicated high risks of a recession in the next 6-12 months, and in the last few weeks the risks have increased,” said Dmitry Terpelov, portfolio manager at Sistema Capital.

At the same time, managers continue to increase investments in shares of European companies and companies in developing countries. “Interest in the shares of the regions is supported by the opening of the Chinese economy: many large manufacturers of consumer and industrial goods generate a high share of their revenue from doing business in China, and this exposure is on average higher than for the shares of large American companies,” Dmitry Terpelov notes. In addition, the European economy has avoided the energy crisis, which put pressure on the shares of European companies.

The financial problems of American banks have almost no effect on the Russian stock market. On Tuesday, the Moscow Exchange index updated its six-month high, rising above 2,400 points. “Given the trade restrictions for unfriendly non-residents, the increase in volatility does not affect the Russian market so much,” said Mikhail Bespalov, an analyst at KSP Capital Asset Management. However, he points out that further risk aversion and increased fears of a recession will also affect commodity markets, which could negatively affect the Russian economy, given the growing budget deficit and the ongoing discount on Russian energy resources.

Vitaly Gaidaev