On Wednesday, according to the latest report released by renowned Bank of America strategists Michael Hartnett and others, a global survey conducted by Bank of America in October showed that after the introduction of a package of stimulus measures in China, the net percentage of global fund managers bullish on the future strength of the Chinese economy in the next 12 months reached 48%, the highest since April 2023, reversing the results of the previous month's survey.

"Bullish on Chinese stocks" also ranked third in Bank of America's latest survey of the most popular trades, with 14% of respondents bullish on this trade. Topping the list of the most popular trades at Bank of America is being bullish on the magnificent 7 of US tech stocks, reaching 43%, followed by being bullish on gold at 17%.

According to this survey, under the stimulus policies in China, emerging market stocks and csi commodity equity index are considered to be the biggest winners, while government bonds and the Japanese stock market are considered the biggest losers.

It is worth noting that Bank of America's latest report also shows that global stock markets have just seen the first sell signal since February 2021. This sell signal is based on the cash allocation ratio. The current ratio has dropped from 4.2% to 3.9%, the lowest level since February 2021.

Hartnett explains that a drop in the cash allocation ratio below 4% is a sell signal. This is a contrarian signal, as it usually occurs when investors are actively investing in stocks and their cash levels are low: this sell signal often precedes market corrections, and after the sell signal is triggered, global stock markets face weak returns in the short term. Since 2011, there have been 11 such sell signals issued in advance, with global stock market returns at -2.5% one month after the sell signal is triggered, and -0.8% three months after the sell signal is triggered.

Using the example of the last cash allocation ratio sell signal triggered by Bank of America in February 2021:

The pullback in the s&p 500 was not significant, touching a cyclical top in February 2021, then falling more than 4% from the peak over the following few weeks.

The pullback of the Nasdaq 100 was quite significant, reaching a cyclical peak in February 2021, followed by a decline of more than 12% from the recent high over the next few weeks.

Bank of America's global stock market sell signal is flashing as the stock market approaches historical highs. Bank of America points out that due to the Fed rate cuts, China's stimulus measures, and expectations of a soft landing, investors are exhibiting extremely optimistic behavior. Investor optimism has seen its largest increase since June 2020, fueling the rise of bubbles.

The backdrop for investors' optimistic sentiment is their expectations of a stable global economic foundation with growth prospects in the coming years. Surveys show a significant increase in global economic growth expectations, marking the fifth largest increase since 1994.

76% of institutional investors surveyed by Bank of America believe that there is a high probability of an 'soft landing' for the economy. In the alternative scenario, respondents generally believe in a 'no landing' outcome rather than a dire 'hard landing'. The key difference between a soft and hard landing lies in how fast the economy will grow in the future, with the economy facing a contraction in the hard landing scenario.

As for potential market risks, investors are most concerned about geopolitical conflicts, with the proportion of those worried rising from 19% last month to the latest 33%. Other risks investors are focused on include rising inflation and potential economic recession.

Bank of America's aforementioned survey was conducted from October 4 to 10, with a total of 195 fund managers responding, managing assets totaling 503 billion US dollars.

Editor/Somer