Pollyanna investors expecting more growth and less inflation

SurveyA Pollyanna-ish mood has come over investors with a record number expecting above-trend growth and below-trend inflation, according to a Bank of America Merrill Lynch survey.

At the same time the number of fund managers expecting below-trend growth and below-trend inflation fell 11 percentage points from last month to 34% in October.

Investors were bullish on bond yields, with 82% of those surveyed indicating they expect bond yields to rise in the next 12 months and a record net 85% saying bonds are overvalued.

Fund managers have positioned themselves for higher yields, rotating over the past month into banks and Japan and out of utilities, emerging markets, healthcare and bonds.

Over two-thirds of investors thought the US will see tax cuts in 2018 but tax reform will not have a big impact on risk assets.

The most significant tail risk to markets was considered by investors to be a policy “mistake” by either the Federal Reserve or the European Central Bank, followed by North Korea and a crash in bond markets.

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