Is big money eyeing an equities exit?

admin | 苏州桑拿
14 Aug 2019

An exit from equities for big money could be on the cards after a record number of global fund managers reckon that stocks are overvalued, according to a survey.
SuZhou Night Recruitment

In Bank of America Merrill Lynch’s monthly survey of 200 global investors representing close to $US600 billion in assets under management, a net 34 per cent of managers said equities are overvalued, the highest reading in the 17 years that question has been asked, and up from 26 per cent in February.

Making matters worse, asset managers are heavily exposed to equity markets, with a net 48 per cent saying they are overweight stocks in their portfolios, meaning they hold more than their benchmarks would require.

“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,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Broken out by region, a net 81 per cent of investors identified the US market as the most overvalued, while 44 per cent and 23 per cent believe emerging markets equities and eurozone equities, respectively, are undervalued.

The survey’s results come amid growing worries that particularly US stocks are overvalued, with the S&P 500’s forward price-earnings ratio at its highest level since 2004.

Despite suffering its biggest fall in more than six months on Tuesday night, Wall Street’s main index, the S&P 500, is still up more than 12 per cent since the US election on hopes that President Donald Trump’s fiscal plans will stimulate higher economic growth.

“The S&P500 is ripe for a corrective selloff,” said Fat Prophets CEO Angus Geddes, adding he expects a retreat of up to 7 per cent from current levels.

“If Wall Street does indeed fall by 5 per cent to 7 per cent in a corrective selloff then it stands to reason the rest of the world may only sneeze this year and not catch the proverbial cold,” he said.

One sector that could suffer from any selloff is banks, which the surveyed fund manager consider to be the second-most crowded trade after their recent rally. First is the US dollar, which despite recent losses is still well above levels from last year.

Asked what they think is most likely to trigger an end of the eight-year equity bull market, 36 per cent point to rising interest rates, followed by 23 per cent citing weaker earnings.

Interestingly, the fear of protectionism has fallen sharply, from about 35 per cent in February, when it was seen as the biggest risk to the bull market, to 21 per cent. The survey was conducted just before the G20 finance ministers last weekend excluded a standard line on resisting protectionism from their final communique, apparently at the behest of the US.

A net 58 per cent of survey respondents expect the global economy to improve over the next year, down slightly from a 59 per cent in February, the March survey also found.

European elections raising the risk of disintegration of the eurozone remains the biggest tail risk for global growth, according to 33 per cent of investors, followed by trade at 20 per cent and a crash in global bond markets at 18 per cent.

The long-running survey, which is conducted each month, is considered one of the best barometers of big money investment opinion.

Comments are closed.