Big investors remain nervy about the stability of global markets, according to the August survey from Bank America Merrill Lynch. The US sharemarkets remain danger spots, but euro shares are again highly favoured.
In fact a record number of investors think that with the number of investors saying equity markets are overvalued rising to a record high of 46% percent in August.
US shares are again out of favour, with the allocation falling to a net 22% underweight, the largest underweight since January 2008.
The relative US equity positioning versus the rest of the world was also the lowest since April 2007.
The tech-dominated Nasdaq Composite was picked as the “most crowded” trade for a fourth straight month, nominated by 31% managers.
In contrast, the allocation to euro zone equities rose to a net 56% overweight from a net 54% last month while emerging markets also remain in favour.
"Cash and overvaluation fears aside, fund manager survey positioning remains broadly pro-risk, pro-cyclical," BAML said.
For the second straight month, investors cited the top two biggest risks to the market to be a policy mistake by the Federal Reserve or European Central Bank (22%) and a crash in global bond markets (19%).
“Investors’ expectations of corporate profits have taken an ominous turn this year which is a warning sign for equities over bonds, high yield over investment grade, and cyclical sectors over defensive ones,” said Michael Hartnett, chief investment strategist at BAML. “Further deterioration is likely to cause risk-off trades.”
The survey, which polled 202 asset managers with $US587 billion under management, was carried out between August 4-10 and showed cash levels at a stubbornly high 4.9%, whilst the allocation to equities fell to a net 36% overweight.
European investors’ cash weighting rose to 5.3%, the highest reading since March 2003 and despite European markets still considered one of the better places to invest.
Many managers are worried about bonds, currencies and a new area of concern, corporate profits.
Only 33% of managers surveyed 33 per cent think global corporate profits will improve over the next 12 months, down 25 percentage points from the start of the year (62% in January) and at the lowest level since late 2015.
The fall in confidence reflects growing pessimism over the impact of wage rises on some larger companies and despite assurances in the US that president Trump will lower corporate taxes – which is now looking more unlikely.
But despite the gloom, many big investors remain upbeat – for example the survey shows that the percentage of investors expecting a ‘goldilocks’ economic scenario of above-trend growth and below-trend inflation rose 6 percentage points to 42%, a record high. (sounds a bit like what the Reserve Bank sees ahead for Australia).
In fact in answer to a new survey question, 43% of those answering thought low inflation was structural.
