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Investors’ expectations of global economic growth and corporate profits have tumbled to the lowest on record, Bank of America’s monthly survey of global fund managers for July said on Tuesday, describing the picture as “full capitulation”

BofA, which polled investors overseeing US$800-billion in assets, said equity allocations had slumped to levels last seen in the 2008 global financial crisis, which was triggered by the collapse of the U.S. investment bank Lehman Brothers.

They raised the share of uninvested cash in portfolios to above 6 per cent, the highest in more than two decades, BofA said, adding the survey showed a “dire level of investor pessimism.”

The poll was conducted July 8-15, just after U.S. shares posted the worst first-half decline since 1970. They are now down almost 20 per cent in the year so far.

Recent data showed rapidly cooling economic growth with stubbornly high inflation despite steadily rising interest rates and a 150-basis-point increase in U.S. 10-year borrowing costs.

The rate rises and global growth pessimism have lifted the U.S. dollar to its highest levels in two decades. The survey found dollar positioning was the most crowded trade in July.

Recession fears, now at levels last seen in May, 2020, were prompting fund managers to reassess expectations for price growth. Three-quarters of those surveyed saw inflation slowing in the next 12 months and did not predict higher bond yields.

With an eye on slowing economic growth, funds cut allocation to bank shares by 16 percentage points month on month, going underweight in the sector for the first time since October, 2020.

Half of the investors said they would prefer companies to shore up balance sheets, rather than spend more capital or return cash to shareholders.

But BofA said the survey indicated its Bull/Bear indicator was now at “max bearish,” suggesting a turnaround might be on the cards. “Sentiment says stocks/credit rally in coming weeks,” it added.

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