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Bloomberg's John Authers on key surprises from the ASR Asset Allocation Survey

5th JUL. 2023

John Authers considers how  “the first half of 2023 was one of the weirdest and least expected passages in recent market history”, referring extensively to the latest quarterly survey of asset managers by ASR — covering 242 across the world, managing $6.6 trillion between them. 

As noted by John and ASR’s David Bowers…

…the ASR survey “charts how perceived probabilities have evolved. For the sixth quarter in a row, most expect a global recession within the next 12 months (it hasn’t started yet), but the proportion has steadily fallen. There is still no great optimism about the economy, but many are surprised that we do not already have a downturn, and certainty is falling. That helps risk assets." For many respondents, “The economy and the corporate sector have proved more durable than expected… enough to raise prices and shake confidence among the many asset allocators who had been braced for something far worse”. 

Yet, “...the asset allocators who talked to ASR have barely juggled their own portfolios. They are still positioned for bonds to perform better than stocks over the next year, by a proportion that has barely changed over three dramatic months. In part this is because valuations, which have amazingly grown richer in 2023, are viewed as inevitably bound for a fall.”

The artificial intelligence boom might have spurred some changes of heart among allocators, but not by much. To quote David Bowers: “The less pessimistic attitude towards corporate profits may be an acknowledgement that the recent innovations in Artificial Intelligence (AI) have some potential to boost earnings in both the short and medium term… The implied probability that Global Technology will outperform Financials has also risen to 55%, prompting asset allocators to trim their longstanding preference for Value over Growth. But the impression from the survey is that AI is not (yet) a gamechanger on a 12-month view.”

Instead,  “the key differentiator between bulls and bears is not the economy, but rather about liquidity and monetary conditions. And this leads to … why the first half of 2023 has been so good for those who invest in the S&P”. Bowers again: 

“The Bears expect Monetary Conditions to tighten; in contrast, the Bulls expect them to ease. Apart from Bulls expecting a weaker US Dollar, it is not clear what drives these different perceptions, but the effect is clear.”

John Authers concludes, “The economy is not doing brilliantly, but it’s doing better than expected. On the face of it, that means higher rates until something breaks. Bulls think that a breakage can be avoided, and that central banks will make the money available to do so; bears think that sooner or later, higher rates are going to have to be allowed to hurt.” 

  • To read the full article from John Authers on Bloomberg, please click HERE (Bloomberg subscription may be required) 

  • ASR clients can read the full survey results in ASR Asset Allocation Survey - Defensive Stance Despite Risk-on Markets 

  • Clients can refer to ASR Asset Allocation Quarterly - Risk Assets Still Vulnerable To Recession to see why, despite the recent rally in risk assets, we remain cautious.

  • To receive a copies of these notes as part of free trial access, kindly reply HERE 

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