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BAML Survey: Shares Are Overvalued

A record number of big global and regional fund managers think global shares are over-valued, according to the Bank of America Merrill Lynch (BAML) monthly investment manager survey, with internet stocks experiencing the most stretched valuations.

Following a week in which global technology stocks have been under pressure - falling from record highs in the US on Friday and Monday, BAML’s monthly survey of money managers reveals 44% think equities are expensive. That’s the highest since the survey began in 1998, while 18% of investors think stocks are in “bubble like” territory.

Back in March a then record number of money managers believed equities were overvalued.

A net 34% of managers said equities are overvalued, at the time that was the highest reading in the 17 years that question has been asked, and was up from a net 26% in February.

Broken out by region, a net 81% of investors identified the US as the most overvalued region, up from a net 78% last month, while a net 44% and 23% believe emerging markets equities and eurozone equities, respectively, are undervalued, compared to 49% and 24% last month.

This month a record 84% of investors think the US is the world’s most overvalued equity region.

The record-high level of concern about overvaluation coincides with a record exposure that hedge funds have to stocks. Hedge fund portfolios have a 73% net long exposure to equities, around the levels of the second quarter of 2015, according to a separate report from BofAML.

Investors also are concerned about the surge in tech stocks, with the Nasdaq at the top of the most-crowded trade list, according to the survey - and that concern burst into public view last Friday and Monday of this week with the tech sector down sharply in the biggest two day fall for 9 months.

But Wall Street rallied overnight Tuesday with the Nasdaq up 0.7%.

The S&P 500 rose 0.45% to 2,440.35, setting for a new record closing high.

The Dow followed, adding 0.33% for its own all-time closing high of 21,328.47, while the Nasdaq jumped 0.73% to close at 6,220.369.

“Investors’ perception of excess valuation are coinciding with high global profit expectations”, said Michael Hartnett, the investment bank’s chief investment strategist. He warned that market vulnerability to any dip in profits is “very high”.

Investors also also less sanguine about future economic growth prospects, with expectations of rising growth falling to 39% this month from a peak of 62% in January. Outside the US, the outlook for European stocks is better.

Just under 20% of investors think the continent’s equities are still under-valued in year when the eurozone has managed to fend off populist political risks in Holland and France, and expected to in Germany in September, while the European Central Bank is set to continue with its record stimulus measures even though it ruled out any more interest rate cuts last week. The survey was carried out between June 2-8 with investors who hold $US596 billion in assets under management.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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