Taper tantrum, inflation surpass Covid as top market risk: BofA survey

Taper tantrum, rise in inflation and increase in corporate taxation have toppled Covid-19 as the biggest risk for investors, reveals the Global Fund Manager Survey by BofA.

“A year ago, Covid-19 was named a global pandemic on March 11. Now in April 2021, a mere 15 per cent cite COVID-19 risk as the biggest tail risk, lower than even "higher taxes" at 15 per cent. Taper Tantrum is now first at 32 per cent, followed by inflation at 27 per cent,” said the brokerage in a note.

The BofA Survey was conducted between April 6 and 12 with over 200 panelists with $553 billion in assets under management participating.

More than 50 per cent of the participants expect a V-shaped recovery in the economy compared to just 10 per cent in May 2020. About 37 per cent believe it will be a ‘U’or ‘W’-shaped recovery.

A net 85 per cent of the fund manager survey (FMS) participants expect global profits to improve over the next 12 months, down from 89 per cent in March.

An overwhelming 93 per cent of FMS investors expect higher inflation in the next 12 months.

“Nobody believed that rates at 1.5 per cent would cause an equity correction. But the move from 1.5 per cent to 2 per cent is critical as 47 per cent of investors now think 2 per cent is the level of reckoning in the 10-year Treasury that will cause a 10 per cent correction in stocks,” BofA said.

Most fund managers said the 10-year Treasury yield at 2.3 per cent would make bonds attractive relative to stocks.

Meanwhile, only 7 per cent of the respondents think the US equity market is in a bubble, 25 per cent still think of it as an early-stage bull market, and 66 per cent believe it to be late-stage bull market.

Most FMS investors now believe the S&P500 to outperform in 2021. In March, most had said that the emerging markets would be the best asset class for 2021. About 10 per cent said Bitcoin will be the asset class that will outperform in 2021. About 74 per cent of FMS investors said Bitcoin is a bubble.