On Wednesday, according to the latest report published by well-known strategists at Bank of America, including Michael Hartnett, a global survey conducted by the bank in October showed that after the introduction of a package of stimulus measures in China, the net percentage of global fund managers who expect the Chinese economy to strengthen in the next 12 months reached 48%, the highest since April 2023, reversing the results of last month's survey.
"Long Chinese stocks" also ranked third in the most popular trade rankings in Bank of America's latest survey—with 14% of respondents favoring this trade. At the top of Bank of America's most popular trade rankings is the long US technology sector's "Seven Sisters," reaching 43%, and the second most popular is long gold, reaching 17%.
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According to the survey, under China's stimulus policies, emerging market stocks and commodities are considered the biggest winners, while government bonds and the Japanese stock market are considered the biggest losers.
A cautionary note is that Bank of America's latest report also shows that the global stock market has just issued its first sell signal since February 2021. This sell signal is based on the cash allocation ratio. Currently, the ratio has dropped from 4.2% to 3.9%, the lowest level since February 2021.
Hartnett explained that a cash allocation ratio falling below the 4% level is a sell signal. This is a contrarian signal because it typically occurs when investors are actively investing in the stock market and cash levels are low:
This sell signal usually precedes market adjustments, and after the sell signal is triggered, the global stock market faces weak returns in the short term. Since 2011, there have been 11 such sell signals issued in advance, with the global stock market's return rate at -2.5% one month after triggering the sell signal, and the global stock market's return rate at -0.8% three months after triggering the sell signal.
Taking the previous February 2021 trigger of Bank of America's cash allocation ratio sell signal as an example:
The pullback of the S&P 500 was not significant, touching a phase top in February 2021, and then the low point in the following weeks fell by more than 4% from the high.
The pullback of the Nasdaq 100 was quite noticeable, touching a phase top in February 2021, and then the low point in the following weeks fell by more than 12% from the high.
Bank of America's global stock market sell signal flashed as the stock market approached historical highs. The bank pointed out that due to the Federal Reserve's interest rate cuts, China's introduction of stimulus measures, and expectations of a soft landing, investors have shown very optimistic behavior. Investor optimism has seen the largest increase since June 2020, which suggests that a bubble is rising.The broader context in which investors are showing optimism is their expectation that the global economic foundation is solid and is expected to achieve growth in the coming years. Surveys indicate that the growth expectations for the global economy have been significantly revised upwards, marking the fifth-largest increase since 1994.
Seventy-six percent of institutional investors surveyed by Bank of America believe that there is a high likelihood of an "economic soft landing." Regarding alternative scenarios, respondents generally consider it to be a "no landing" rather than a poor "hard landing." The main difference between a soft landing and a hard landing for the economy lies in how fast the economy will grow in the future; in a hard landing scenario, the economy faces contraction.
As for potential market risks, investors are most concerned about geopolitical conflicts, with the proportion of those worried rising from 19% last month to the latest 33%. Other risks that investors are paying attention to include rising inflation and the potential for an economic recession.
The aforementioned survey by Bank of America was conducted from October 4th to 10th, with responses from 195 fund managers who manage a total of $503 billion in assets.