Bubble fears as fund managers chase markets higher

Cornelia Mascio
Novembre 15, 2017

Even after a $5 trillion gain in US stocks over the past year, a net 49 percent said they are overweight, the highest level since April 2015.

Indeed, according to the latest FMS average cash balances fell from 4.7% in October to 4.4% in November - their lowest level since October 2013 - as asset managers chased markets higher.

The "Goldilocks" scenario, a combination of low inflation and strong growth, has become the "consensus" view for the global economy, with 56% of investors predicting above-trend growth and below-trend inflation.

Central bank action was highlighted as the biggest tail risk to markets with 27% of respondents believing a policy mistake from the Federal Reserve or European Central Bank could cause a correction.

"Icarus is flying even closer to the sun", said Michael Hartnett, chief investment strategist, "and investors' risk-taking has hit an all-time high".

At the same time, a record net 16% of investors said they are taking above-normal levels of risk in their investment, despite the fact that a record high net 48% of investors surveyed thought that equities were now overvalued. "A record high percentage of investors say equities are overvalued yet cash levels are simultaneously falling, an indicator of irrational exuberance", said Michael Hartnett.

In addition, allocations to United Kingdom equities hit a level last seen during the Global Financial Crisis, with pessimism towards United Kingdom equities declining to net 37% underweight.

On that point investors were divided, with 42% expecting shares to drop and 35% expecting further gains, BofA-Merrill said. At the same time the allocation to Japanese equities rose to the highest level for two years, with a net 23% of global managers overweight in the country.

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