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Fund manager sentiment most bearish in 2 years

Concerns over the winding down of easy monetary policy has sent investors into a tail spin, with persistent selling pushing a number of sectors firmly into correction territory.

Global equities are now down roughly 8 percent in dollar terms from their summer highs, and money has flowed out of stocks into cash and bonds.

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Emerging market stocks, U.S. small caps and oil are all in correction territory, having fallen 10 percent or more, and for the week ended October 8, nearly $13 billion came out of equity funds according to BlackRock

Trader on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Trader on the floor of the New York Stock Exchange.

As a result, fund managers are much less confident in the outlook of the global economy and corporate profitability.

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Only 32 percent of investors polled by Bank of America Merrill Lynch in October expect the global economy to strengthen over the next 12 months, down more than 20 percentage points from September and the lowest reading in two years.

Monetary policy underlies this shift in sentiment, the bank said in its monthly fund manager survey. Only 18 percent of fund managers now view policy as too stimulative, down 14 percentage points to the lowest level since August 2012.

Last week, the Dow Jones Industrial Average lost 2.73 percent, the S&P 500 Index fell 3.10 percent and the Nasdaq dropped 4.44 percent. Meanwhile, the yield on the 10-year Treasury dropped from 2.44 percent to 2.28 percent.

"Ironically, last week's stock selling could have been driven by the paradox of a little too much growth in the U.S. and too little everywhere else," BlackRock's global chief investment strategist, Russ Koesterich said.

"While we don't expect another global recession, the last few weeks illustrate why the world economy is still going to be defined by relatively meager growth," he said.

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Chief market analyst at Interactive Brokers, Andrew Wilkinson said hopes for stability were crushed by a "laundry list of simmering doubts" rather than a singular cause – but growth in itself is a "multi-faceted subject".

In Europe, equities are reverting to fundamentals now the European Central Bank "hope trade" has gone, European equity and quantitative strategist at BofA ML, Manish Kabra said.

An overall total of 220 panelists with US$640 billion of assets under management were polled by BofAML from 3 October to 9 October 2014.