The pressure to match monetary expansion with fiscal shifts is growing as nearly half of fund managers said global policies were too restrictive.
The latest Bank of America Merrill Lynch (BAML) Global Fund Manager Survey showed a record 48 per cent of investors thought worldwide fiscal policy was restrictive and hampering growth.
This comes amid expansions from the Bank of Japan and the Bank of England – with both countries experiencing pressure to match these actions with fiscal loosening.
The survey also showed investors’ fear of an increase in protectionist acitivity from countries was rising in the advent of UK’s decision to leave the EU.
Investors had become increasingly risk averse in the build-up to June 23 EU membership vote, citing it as the largest tail risk to markets.
However, in the weeks after the vote, some 60 per cent said the risk of protectionism was above normal – the highest level since December 2010.
Meanwhile sentiment to the UK “dropped further” among European fund managers, with net 53 per cent of these intending to underweight the region.
Geopolitics and protectionism are now the two biggest risks to financial market stability, according to respondents. Since the vote, 22 per cent cited EU disintegration as the biggest tail risk to investments.
The research also found global managers had become less bearish, with cash levels falling from 5.8 per cent to 5.4 per cent. US equities remain popular, with the survey showing the highest overweight to the region since January 2015.
