"Famous Contrarian" Bank of America Survey: Institutions are more optimistic about the economy and AI, more optimistic about China, and hold low positions in cryptocurrencies and gold

The latest Bank of America survey shows that global fund managers are exhibiting the most optimistic sentiment since February of this year. This optimism primarily stems from increasing confidence in a "soft landing" for the global economy, recognition of AI's potential to enhance productivity, and expectations for an improved outlook for the Chinese economy.

According to the Wind Trading Desk, on August 10, renowned Bank of America analyst Michael Hartnett and his team released the latest Global Fund Manager Survey (FMS), which they refer to as a "famous contrarian indicator" that has accurately predicted key market turning points over the past year.

The August FMS survey was conducted from July 31 to August 7, covering 197 fund managers with a total managed asset size of $475 billion.

The survey results indicate that market sentiment has significantly improved, with as many as 68% of respondents predicting a "soft landing" for the global economy. This shift has led fund managers to increase their allocation to stocks for the fourth consecutive month, with a net overweight ratio reaching 14%, a six-month high; optimism regarding future interest rate cuts has reached its highest point since December 2024.

At the same time, institutions have significantly increased their allocation to emerging market stocks and have turned optimistic about the outlook for the Chinese economy, with their level of optimism rising to a five-month high.

Additionally, optimism regarding AI is also on the rise, with 55% of respondents believing that AI is already enhancing productivity, a significant increase from 42% in July. Although 52% of fund managers believe that AI stocks are not in a bubble, "going long on Mag 7" has once again become the most crowded trade.

However, despite the general warming of market sentiment, institutional investors still have very low allocations to cryptocurrencies and gold.

It is noteworthy that as investor cash levels have dropped to 3.9%, it has triggered a "sell signal" compiled by Bank of America itself. The triggering of this signal further highlights the reference value of this survey as a contrarian market indicator, suggesting that the currently highly consistent optimistic sentiment may indicate the risk of a short-term market correction.

Concerns about recession ease, "soft landing" becomes consensus

The Bank of America August FMS survey results show that market sentiment has significantly improved, with investor sentiment indicators reaching a six-month high.

68% of respondents expect a "soft landing" for the global economy, 22% believe there will be "no landing," and only 5% anticipate a "hard landing," the lowest since January.

This optimistic sentiment is also reflected in expectations for monetary policy, with optimism about future interest rate cuts reaching its highest point since December 2024.

In addition, more than half (54%) of fund managers believe that the next Federal Reserve chairman may resort to measures such as quantitative easing (QE) or yield curve control (YCC) to alleviate the U.S. debt burden.

However, inflation concerns have risen. A net 18% of investors expect global CPI to rise in the future, marking a three-month high. Among the primary tail risks perceived by investors, concerns that "inflation will prevent the Federal Reserve from cutting interest rates" rose from 20% to 27%, following "trade wars triggering a global recession" (29%).

Regarding tail risks, trade wars triggering a global recession remains the biggest concern at 29%, although it has decreased from 38% in July. Concerns that inflation will prevent the Federal Reserve from cutting interest rates rose to 27%, while worries about disorderly rises in bond yields increased to 20%, and concerns about an AI stock bubble rose to 14%.

AI Optimism Soars, But Bubble Controversy Persists

AI is another major focus of this survey. The report shows that investor optimism is dominant, with as many as 55% of fund managers believing that AI has "already begun" to enhance productivity, a significant increase from last month.

However, there remains a significant divide in the market regarding whether there is a bubble in AI stocks. 52% of respondents believe that AI stocks are not in a bubble, while 41% of investors hold the opposite view, believing that a bubble has formed.

On the trading front, "going long on Mag 7" has again become the "most crowded trade" this month with a 45% vote share, reflecting that despite bubble concerns, funds are still chasing large tech stocks.

Capital Flows into Emerging Markets, Bullish Sentiment on China Recovers

In terms of asset allocation, the most significant trend in August was the rotation of funds from Europe to emerging markets. The net overweight ratio of fund managers for emerging market stocks surged from 22% to 37%, reaching the highest level since February 2023.

The outlook on China's economic prospects has also improved. A net 11% of respondents expect the Chinese economy to strengthen, the highest level since March 2025.

Meanwhile, fund managers remain pessimistic about U.S. stocks. The allocation to U.S. stocks is still in a net underweight position of 16%, with 91% of respondents believing that U.S. stocks are overvalued, reaching a record high.

From a sector perspective, funds have rotated into utilities, energy, and financial sectors, while flowing out of the healthcare sector, which has seen its net overweight ratio drop to the lowest level since February 2018.

Cryptocurrency and Gold Neglected, Institutional Allocation Extremely Low

Despite a rebound in market risk appetite, fund managers' interest in cryptocurrencies and gold remains limited, with very small exposure in overall portfolios.

The survey shows that only 9% of respondents hold cryptocurrencies, and among these holders, the average allocation ratio is 3.2%. When considering all respondents, the average portfolio exposure to cryptocurrencies in the entire fund manager survey sample is only 0.3%.

As high as 82% of respondents indicated that they have not yet started to make structural allocations to cryptocurrencies.

The situation for gold is slightly better, but the allocation level is also not high. 48% of investors hold gold, with an average allocation ratio of 4.1%. However, considering that 41% of investors have no gold positions at all, the overall weighted average exposure to gold in the portfolio is only 2.2%.