Managers are not sure about the growth

International investors are worried about the banking crisis and the possible recession of the global economy: they started talking about a possible reduction in the Fed’s rate, which will avoid a depression. Under conditions of increased uncertainty, managers maintain a high proportion of cash in their portfolios and a low risk appetite. Shares of companies from developing countries, including Russian ones, remain in an exclusive position. However, they can also suffer in the event of a downturn in the global economy.

An April survey of portfolio managers by Bank of America (BofA) analysts indicates that international investors’ expectations regarding the outlook for the global economy are deteriorating. The survey involved 286 portfolio managers who manage $728 billion. According to the survey, the number of respondents who are confident that the world economy will slow down in the next 12 months was 63% higher than the number of those who hope for an acceleration. In March and February, there were 51% and 35% more pessimists, respectively.

Managers are concerned about the banking crisis in the US and Europe, which, although it was stopped by the financial authorities, was not resolved, since its root cause, high rates, was not eliminated. According to 38% of BofA respondents, this, combined with a recession, is a key risk for the global economy on a 12-month horizon. “Regulators did not begin to curtail the tightening cycle, but mainly continued to raise rates. Higher rates are a deterioration in credit conditions for business,” said Andrey Kochetkov, a leading analyst at Otkritie Investments.

At the same time, market participants are now talking about the increased likelihood of the Fed moving to a looser monetary policy. According to a BofA survey, 35% of portfolio managers said that the US financial regulator will announce a rate cut in the first quarter of 2024, 28% expect such a step in the fourth quarter of this year. Expectations of a further rate hike dominated in March, with a third of those surveyed believing that the rate would peak at 5.25-5.5%. “The savings of citizens have clearly not increased in recent years, when they experienced a period of a coronavirus pandemic and a surge in inflation. Accordingly, in order not to turn a recession into a depression, central banks will be forced to return to stimulus, but only after inflation shows a steady slowdown. Signs of this are already being observed in the US and the Eurozone, but so far the achieved levels are still far from the targets,” notes Mr. Kochetkov.

Until the Fed starts lowering the rate, managers remain cautious about investments. In April, the share of cash in their portfolios remained at the level of 5.5%. At the same time, the number of portfolios in which investments in shares were below the indicative level was 29% higher than the number of those in which this share was higher. Over the month, the indicator increased by 2 percentage points (p.p.). With increased caution, managers are investing in shares of US companies. In addition, for the first time this year, the number of sellers of European stocks equaled the number of buyers, in response to the spread of the US banking crisis to Europe. Also, says Konstantin Asaturov, Managing Director of the Equity Department of Sistema Capital Management Company, Europe’s energy problems are of a long-term structural nature, which will slow down the growth of its economy.

At the same time, managers increase investments only in the markets of developing countries. According to BofA, the number of managers with a share of such securities in the portfolio above the indicative level was 30% higher than the number of those with a lower indicator. In March, there were 7 percentage points more buyers. But, according to Konstantin Asaturov, in the scenario of a stronger slowdown in economic growth, these markets will lose more than their developed counterparts. The Russian market, which, despite its isolation, is highly dependent on the dynamics of oil prices, may also be under attack. If the recessionary scenario does materialize, said Yury Grossman, portfolio manager at TRINFICO Management Company, oil could drop to $60 per barrel of Brent, which would lead to a weakening of the ruble, and the recovery of the index would slow down.

Vitaly Gaidaev