The survey, conducted between 2 May and 8 May, with 75 per cent of responses submitted before the announcement of US-China trade talks in Geneva, revealed a clear rebound from April’s extreme bearishness.
Expectations for a global recession have plunged, with just 1 per cent of fund managers now forecasting a downturn, down from 42 per cent the previous month. At the same time, the proportion of investors anticipating a soft landing for the global economy jumped to 61 per cent, up from 37 per cent in April.
Hard landing fears receded to 26 per cent, while 6 per cent now see a “no landing” scenario, a modest uptick from 3 per cent.
While the majority, 59 per cent, still expect weaker global growth ahead, this marks a sharp improvement from the 82 per cent recorded in April.
However, BofA said, investors remain cautious about future geopolitical risks, with trade tensions still seen as the top risk to the global financial system.
In response, investors are adjusting their portfolios. Average cash levels fell to 4.5 per cent in May, from 4.8 per cent in April, dropping below the long-term average for the first time this year.
Meanwhile, a significant rotation occurred within equities, with investors reducing their overweight positions in US stocks, cutting their US equity allocation to a net 38 per cent underweight, the lowest level in two years.
On the other hand, there has been a significant increase in the allocation to Eurozone equities, with a net 35 per cent overweight in the region, up from 22 per cent in April.
“On a relative basis, investors are the most overweight Eurozone versus US equities since Oct ’17,” BofA said.
BofA also noted a substantial increase in allocation to tech stocks, with tech allocation spiking by 17 ppt month-on-month, the biggest monthly jump since March 2013.
This, it said, aligns with a broader trend of increasing exposure to cyclical sectors, including technology and industrials, while defensive sectors such as staples, healthcare, and energy are trimmed.
As a result, there has been a marked increase in large-cap stocks’ conviction, with 50 per cent of investors expecting large-cap stocks to outperform small-cap stocks, the highest level since June 2022.
Despite these optimistic shifts, investors remain cautious about certain assets, particularly gold, with the survey finding that gold is now viewed as the most overvalued asset, with 45 per cent of respondents considering it overpriced.
The “long gold” trade remains the most crowded position for the second consecutive month but, BofA highlighted, investors are growing wary of the yellow metal’s high price.
