The world’s largest fund managers are convinced the global economy is already in recession, and recommended increasing bond holdings in March to the highest level in at least seven years while buffering up on cash at the expense of stocks, a Reuters poll showed.
The damage the coronavirus pandemic and oil price collapse have inflicted on global financial markets has been the fastest selloff since the crash of 1929 that led to the Great Depression.
Some €13.5tn has been wiped off world stock markets, the oil price has slumped 60% since Saudi Arabia and Russia started a price war, and currencies in major emerging economies including Brazil, Mexico and South Africa have plummeted more than 20%.
“For once in many years, the reality of the underlying economic conditions and financial markets’ moves seem to coincide despite policy first-aid, which previously had made the pain go away instantly,” said a global chief investment officer at a large fund management company.
“The recent fall in equities reflects the wrongdoings over the past decade such as share buy-backs at a time when investment growth was warranted. With the economic hit becoming more clear from the worldwide shutdown of activity, the market moves going forward could get more distressing.”
With the US Federal Reserve slashing interest rates to near zero, pumping trillions of dollars into the market and announcing unlimited and open-ended bond purchases, ultra-safe US Treasuries have returned 13% so far this year.
The monthly Reuters poll of 34 fund managers around the globe taken March 16-30 showed that in the model global portfolio, bond holdings — a key gauge of investor caution — rose to their highest since the poll series started in early 2013, to 43.1% from 41.4% last month.
All 19 managers who answered a separate question about the global economy said it was already in recession, similar to economists’ assessments in another Reuters poll.
Asked on the outlook for equities over the next three months, nearly 90% of respondents said stocks would fall further or stay around current levels.
“Trying to call the bottom of the market and carefully buying is like picking up pennies in front of a steamroller,” said Peter Lowman, chief investment officer at Investment Quorum in London.