Just before Israel’s strike on Iran and the US bombing over the weekend, institutional investors were reporting their strongest improvement in sentiment for 2025 so far, according to Bank of America, as concerns over trade wars and recession risks had begun to ease.
Bank of America reported that its fund manager sentiment index – which factored in cash levels, equity allocations, and global growth expectations from 6–12 June – rose from a low of 2.5 in May to 3.3, marking the largest improvement in sentiment in 2025 so far.
Sentiment had at the time returned to levels last seen before Liberation Day, as fears of a trade war and recession began to ease.
In fact, prior to the escalation in tension in the Middle East, the share of respondents expecting a recession had dramatically declined over the past two months – in April, a net 42 per cent believed a global recession was “likely” within the next 12 months, but by June, a net 36 per cent considered it “unlikely” to occur.
The threat of a trade war remained the biggest tail risk for respondents, but even this was down substantially from 80 per cent at the height of Liberation Day fears to 47 per cent in June.
For global growth expectations, a net 46 per cent expected a weaker economy, down from a net 82 per cent in April, which the organisation said was the biggest two-month improvement since the 2024 US election. Since the April low, global growth expectations had jumped by 36 percentage points.
Cash levels fell for the third consecutive month to 4.2 per cent from 4.5 per cent in May, but Bank of America said it was “not worrying” yet despite the figure approaching the critical 4 per cent level.
International equities were expected to be the best-performing asset class over the next five years at 54 per cent, while the proportion who believed US assets would dominate returns had fallen to less than a quarter.
The proportion who believed bonds would outperform stood at just 5 per cent, while expectations for higher bond yields reached their highest level since August 2022, with a net 21 per cent anticipating higher yields over the past 12 months.
These views were reflected in asset allocation decisions, with respondents increasing their exposure to global and emerging market equities while reducing their holdings in European equities and cash. They were most underweight to US stocks, at a net 36 per cent.
The Bank of America Global Fund Manager Survey questioned 222 respondents with US$587 billion in assets under management.
