Global Asset Management Firms Betting on Interest Rate Cuts Across Countries

BoA Survey of Asset Management Firms
91% Say "Interest Rates Will Fall Within 12 Months"
Maintain Position to Increase US Stock Allocation

Major global asset management firms are betting that central banks around the world will implement interest rate cuts this year and are increasing their allocations to risk assets such as stocks. They advise raising the proportion of companies listed in the U.S., as the Federal Reserve (Fed) is the most powerful central bank in the global asset market.

On the 17th, Bank of America (BoA) conducted a survey targeting asset management firms managing a total of $256 billion this month. The results showed that 91% of respondents expected short-term interest rates to decline within the next 12 months. This compares to 87% in the same survey conducted in December last year.

A BoA official stated, “Asset managers have never been as optimistic about short-term rate cuts within a year as they were in January this year,” adding, “Their growth optimism over the past month has coincided with the rise in global stock prices.”

Expectations for a soft landing of the global economy are also increasing. Only 17% of respondents predicted a recession this year, the lowest figure in 19 months. This is analyzed as a high likelihood that the macroeconomy will continue to grow as inflation falls to the target levels of central banks worldwide.

Asset managers are increasing their allocations to risk assets, taking rate cuts and rosy economic forecasts as a given. In particular, they maintained overweight positions in U.S. stocks. When asked about stocks that would benefit most from the Fed’s rate cuts, 25% of respondents cited biotechnology and renewable energy companies. Responses indicating that value stocks such as banks and real estate, as well as emerging market stocks, would be promising each fell below 20%. Additionally, respondents analyzed that small-cap stocks would outperform large-cap stocks this year.

However, institutional preference for U.S. long-term government bonds is declining. Since rate cuts are considered certain, they judged that yields would be insufficient compared to risk assets. Respondents identified the Fed as the most influential factor for both the stock and bond markets this year.

Meanwhile, asset managers’ outlook on the Chinese economy remains negative. Despite many investors attempting to enter the Chinese stock market, which has continued to decline since last year and early this year, caution is advised. The CSI 300 Index and Hang Seng Index, which fell 11% and 19% respectively last year, continue to decline this year as concerns over real estate issues and export sluggishness persist.