BofA Merrill Lynch June Fund Manager Survey finds record number of investors consider equities overvalued


Highlights include:

  • Net 44% of investors surveyed say equities are overvalued, the highest response on record and up from net 37% last month
  • Three quarters of investors surveyed say internet stocks are expensive (57%) or bubble-like (18%)
  • Long Nasdaq (38%) tops the list for the second month in a row when fund managers are asked about the most crowded trade, jumping from 26% in May
  • Net 84% of respondents indicate the US is the most overvalued region for equities, a new all-time high; investors find European equities (net 18%) and EM equities (net 48%) to be undervalued
  • Average cash balance increases to 5.0%, up from 4.9% in May and still above the 10-year average of 4.5%
  • Macro momentum has peaked: investors’ expectations for faster growth have fallen to net 39%, down 23 percentage points since Jan
  • Inflation expectations have also continued to fall, with net 60% of fund managers calling for higher inflation, down from net 75% just two months ago
  • Net 47% of investors surveyed say global monetary policy is “too stimulative,” the highest number in over six years
  • Only net 7% of fund managers say the US Dollar is overvalued, down from net 23% in May and the lowest level since the US election
  • Chinese credit tightening ranks as the top tail risk for the second straight month (31%), with 61% of investors saying tighter Chinese monetary policy will slow the country’s PMI but have little impact on global growth
  • Allocation to Eurozone equities remains near two-year highs (net 58% overweight, down from net 59% overweight in May)
  • Japan equity allocation falls sharply to net 1% overweight, down from net 12% overweight last month

“Market vulnerability to profit weakness is very high,” said Michael Hartnett, chief investment strategist, “with investors’ perception of excess valuation coinciding with high global profit expectations.”

Ronan Carr, European equity strategist, added that, “With the allocation to Eurozone equities still near historical highs the pause in performance may last a while longer.”

Note: BofAML’s June Global Fund Manager Survey was conducted June 2-8; 210 panellists with $596bn AUM participated total. 180 participants with $513bn AUM responded to the Global FMS questions and 92 participants with $209bn AUM responded to the Regional FMS questions.

For more information, click on the links below to read the full research reports.

Global Fund Manager Survey: Fed up with Bubbles

•   Record # say equities overvalued, 3/4 say internet stocks expensive/bubble, long Nasdaq #1 crowded trade
•   FMS cash levels up from 4.9% to 5.0%, too high for “Big Top”
•   June FMS rotation was defensive as macro momentum has peaked

European Fund Manager Survey: Tech-yes

•   Risk appetite has moderated – lower equity allocation, cash weighting elevated. But investors see equities as expensive.
•   Consensus most bullish Tech since 2007 and long Nasdaq seen as the most crowded trade globally.
•   Utilities least-preferred (but not extreme vs own history). Basic Resources second lowest after large fall in allocation.