Global investors flee the US and return to UK stocks
Global investors have fled US stocks at their fastest rate on record in favour of UK stocks, making their highest allocation to British equities since June 2021.
UK equities were the third most overweight sector from global investors this month, beaten out only by utilities and banking stocks, Bank of America’s latest Global Fund Manager Survey revealed.
Just a month ago, the UK was rated as the least attractive market to invest in among fund managers, with an 18 per cent underweight to British equities.
Now, investors are four per cent overweight UK stocks, in only the second month since 2022 that investors have been overweight British equities.
Meanwhile, March saw the biggest drop in US equity allocation ever, amid fears that president Donald Trump’s tariffs policy may kick off a global trade war.
69 per cent of investors agreed that the market theme of ‘US exceptionalism’ has now peaked, compared to just 21 per cent who disagreed.
This was combined with the second largest drop in global growth expectations ever and the biggest jump in cash allocation since March 2020.
In total, 63 per cent of fund managers now expect a weaker global economy in the next year.
While the decline was sharp, sentiment is nowhere near the extreme lows reached during the pandemic or collapse of Silicon Valley Bank.
Instead, growth expectations and equity allocations have returned to a more neutral level, down from the “uber-bull level” following Trump’s victory, BofA said.
“A majority now expect the Trump administration to have a negative impact on growth and a positive impact on inflation, effectively anticipating a stagflationary environment,” explained BofA investment strategists Andreas Bruckner and Sebastian Raedler.
Cash allocations among fund managers jumped from 3.5 per cent of their portfolios in February to 4.1 per cent.
The change in growth expectations came largely from fears of the recessionary trade war, though 13 per cent of fund managers cited Elon Musk’s Department of Government Efficiency as the most likely cause of a US recession.
Along with the UK, Europe has also been a beneficiary of a shift in investment behaviour, with allocation to Eurozone stocks at the highest since July 2021.