A specialist rests his head in his hand as he works on the floor of the New York Stock Exchange
Inflation and the risk of a disorderly market ‘tantrum’ as central bank support is withdrawn remain the top concerns for money managers © AP

Investors say the boost to global growth from economic reopening has already passed its peak even as they downplay the risk of the Delta coronavirus variant derailing the recovery.

Coronavirus ranked fifth among risks to the global economy, according to 239 fund managers, who collectively run $742bn in clients’ money, polled by Bank of America in a monthly survey.

The July survey found that investors had become “much less bullish” on global growth and company profits. The share of investors who thought the economy would continue to improve dropped sharply from a peak of 91 per cent in March to 47 per cent this month. 

The survey result “indicates ‘peak boom’ as expectations for above-trend growth and above-trend inflation” had also started to dip, BofA said. 

Investors’ outlook on growth and profits was gloomier than at any time since last November, when the arrival of coronavirus vaccines and the Democratic win in the US election built on promises to push through historic stimulus packages, persuaded investors that a huge surge in growth was imminent. 

However, fund managers signalled they still believed the recovery in Europe had room to run, despite the recent uptick in coronavirus cases. Europe continues to be the most favoured region by global investors, while managers on the continent were “meaningfully more positive on the European than on the global outlook”, BofA said. 

Inflation and the risk of a disorderly market “tantrum” as central bank support is withdrawn remain the top concerns for money managers, followed by asset bubbles and a possible economic slowdown in China. 

“The economic story of the first half of 2021 has been one of restoration, with vaccine rollouts, policy support and rising confidence helping boost higher bond yields and equity prices,” said Joseph Little, chief global strategist at HSBC Asset Management.

“As the economy moves [from recovery] into expansion, investors need to prepare for the coming cyclical transition, a lower phase of investment returns and a policy regime shift,” he added. 

Despite concerns about inflation risks, 70 per cent of money managers still believed the rise in inflation would be temporary. An equal share expected the US Federal Reserve to signal a reduction in monetary policy support for the economy through asset purchases towards the end of the summer, and investors pushed back the likely date of the first Fed rate rise to January 2023. 

Worries about inflation showed up in investors’ positioning in different assets, however, with few signs that the reflation trade was at an end. Bonds, whose fixed interest payments get eaten away by higher inflation, remained unpopular while funds held on to more commodities and equities, which have rocketed as economies reopened.

Exposure to tech stocks was rated the “most crowded trade” for the first time since April, having been topped by bitcoin and commodities in recent surveys.

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