Trade war is still investors’ top concern
In the BAML (Bank of America Merrill Lynch) October 2018 survey, while trade war concerns were still cited as the top concern among global fund managers, as they have been for six of the past eight months, the intensity of the concern dropped. About 35% of fund managers surveyed cited it as their top tail risk, which is lower than 43% and 57% of fund managers citing it a top risk in September and August, respectively.
While the trade risk is still fresh and the recent trade escalations between the United States and China (FXI) have kept fund managers concerned about ongoing trade tensions, other risks have become more prominent.
Quantitative tightening was the second-biggest fear for fund managers, cited by 31% of participants, significantly higher than 15% citing it one month back. Since then, the concerns of a Fed policy mistake have risen among investors. The recent stock market sell-off was also triggered by the Fed’s aggressive stance on rate hikes. Read Why a Fed Policy Mistake Is Worrying Markets for more on this topic.
In the past few years, one of the factors fueling US equity markets (SPY) (IVV) has been cheap money. The end of easy money could put the brakes on the economy. The concern is echoed by many market participants and experts. Market participants worry that this reversal of direction could derail economic expansion and negatively affect the markets.
The next biggest fear among fund managers was the China slowdown, cited by 16% of survey respondents. Last month, 18% of the respondents cited it as their biggest fear. As the trade war escalates, concerns over China’s slowdown are also picking up. A slowdown in China could have a spillover effect on the world’s economies.