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Investors are bearish on stocks, especially riskier assets, and expect a slower economic recovery as the risk of a second wave of infections from the novel coronavirus persists, a Bank of America fund manager survey showed.

World stocks have bounced back by a whopping 31 per cent in less than two months from a March sell-off, recovering more than half their losses, as investors bet that economic activity would rebound rapidly once lockdowns were eased.

But evidence of fresh coronavirus infections in some countries has dampened those hopes. BofA’s survey showed that a pandemic “second wave” was seen as the biggest risk to markets for the second straight month.

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As economic forecasts continue to deteriorate, May’s poll showed 75 per cent of respondents believe the recovery will be U- or W-shaped. Only 10 per cent of the 194 respondents in the survey were expecting a V-shaped recovery.

A V-shaped recovery is when a plunge in growth is followed by an equally sharp recovery; U-shaped is when recovery takes more than a couple of quarters; and W-shaped refers to a double-dip in growth.

Investor pessimism was further evident in cash levels elevated at 5.7 per cent, well above 4 per cent in February and slightly below April.

Other findings from the survey included that long U.S. tech and growth stocks were the “most crowded” trade for May, and that hedge funds were increasing their exposure to equities by 15 percentage points to net 34 per cent – the largest increase since June, 2018.

BofA’s “Bull & Bear Indicator,” a sentiment index, remained pinned at 0.0 since March, generating a contrarian “buy signal” for risk assets, the U.S. bank said.

On the bright side, risk of a “systemic credit event” – corporate credit defaults – collapsed to 8 per cent from 30 per cent.

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