Investment Strategies
Equities At Most Overvalued Point In 17 Years - BoA Merrill Lynch Poll
A global poll of fund managers by the US firm showed they think equities are in seriously overcooked territory.
Fund managers around the world say equities are at their most
overvalued level in 17 years, with the US seen as the most
expensive while emerging market and European equities are seen as
cheap, according to the March edition of the monthly survey by
Bank
of America Merrill Lynch.
The survey, carried out from 10 to 16 March and covering 200
panellists with $592 billion in assets, showed investors have
already begun deploying cash. Cash levels in portfolios fell to
4.8 per cent in March from 4.9 per cent in February, but they are
still higher than the 10-year average of 4.5 per cent.
“Investor positioning argues for a risk rally pause in
March/April, with allocation to equities at a two-year high and
bond allocation at a three-year low,” Michael Hartnett, chief
investment strategist, said. “Policy is the key catalyst for the
Icarus trade to fly higher in the coming months.”
A record number of investors (net 34 per cent of respondents)
said equities were overvalued. (A net figure is produced by
subtracting negative views from positive ones.) The US is
identified as the most overvalued region (net 81 per cent), while
emerging market equities (net 44 per cent) and eurozone equities
(net 23 per cent) are seen as undervalued.
Investors view higher interest rates (36 per cent) rather
than weaker earnings (21 per cent) as the catalyst most likely to
end the eight-year bull market in equities. A fear of
protectionism (21 per cent) was less severe than in February.
Bond yields are currently too low to hurt equities and some 67
per cent of fund managers surveyed said 10-year Treasury yields
of 3.5 per cent to 4 per cent are needed to tip equities into a
bear market phase.
Fund managers see the possibility of a crack-up of the
European Union, caused possibly by elections this year (there are
polls in France and Germany), as the largest “tail risk” (33 per
cent), followed by the risk of a global trade fight (20 per cent)
and a crash in global bond markets (18 per cent).
A net 32 per cent of investors think the US dollar is overvalued,
the highest proportion since June 2006; long dollar is once again
seen as the most crowded trade (39 per cent).
A net balance of 58 per cent of respondents expect there to be
faster economic growth this year, the poll found.
