Home World Business Record 44pc of fund managers say equities are overvalued: America Merrill Lynch

Record 44pc of fund managers say equities are overvalued: America Merrill Lynch

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A record 44 per cent of global fund managers believe sharemarkets particularly those in the United States, to be overvalued after years of over-stimulative monetary policy, according to a monthly Bank of America Merrill Lynch survey.

In the note, titled ‘Fed up with Bubbles’, three quarters of professional money managers polled said they believe the internet stocks that have driven Wall Street to record highs are either “expensive” or “bubble-like”.

A record 44 per cent of global fund managers believe sharemarkets particularly those in the United States, to be ... A record 44 per cent of global fund managers believe sharemarkets particularly those in the United States, to be overvalued after years of over-stimulative monetary policy, according to a monthly Bank of America Merrill Lynch survey. Photo: Supplied

But the mood now is notably different to those in the 1999 tech bubble, the last time the figures approached June’s highs, the BoA Merrill Lynch strategists stated, as cash levels are rising rather than falling, showing far less “irrational exuberance” than earlier periods. Excess valuations, they added, are coinciding with higher profit expectations, though these expectations have been falling since the start of the year. 

“Market vulnerability to profit weakness is very high, while investors’ perception of excess valuation coinciding with high global profit expectations,” said BoA Merrill Lynch chief investment strategist Michael Hartnett. 

It’s only the latest indicator that fund managers turning cautious on the extent of further gains to be had in equity markets, after a previous Australia-specific survey conducted by JP Morgan found local fundies holding elevated cash levels

According to the BoA Merrill Lynch survey, which polled 180 global fundies with nearly $600 million under management, average cash balances increases to 5 per cent, up from 4.9 per cent in May and still above the 10-year average of 4.5 per cent. Net allocation to equities fell in June, though it remains one standard deviation above the long-term average. 

Opportunities in Europe 

A net 84 per cent of fundies polled believed US equities to be the most overvalued globally, but investors still see opportunities in Europe and emerging markets, with both these regions seen as undervalued. 

Key to the downturn in sentiment has been a pullback on global growth and profit expectations, from recent highs in the early part of the year. A sizeable minority (43 per cent) do still expect profit expectations to improve, but this figure has fallen from recent months. 

But since then, equity markets, perhaps with the exception of the ASX, have only soared higher. One in two fund managers (47 per cent) believe global monetary policy is “too stimulative”, which could be a factor behind the recent records on Wall Street, in Asia and Europe. 

The results, the strategists said, suggest a “preventative hike” is the best way to correct markets. “But we say too little, too late to prevent Icarus.”

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