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BofA Merrill Lynch November Fund Manager Survey (FMS) revealed that investors
'global risk appetite noticeably increases. Other highlights include:
* Average cash balance falls to 4.4% from 4.7% last month, the lowest level since
October 2013 and below the 10-year average of 4.5%.
* A record high (net 16%) of investors say they are taking above-normal levels of risk
in their investment.
* The net share of investors taking out protection against a correction in markets
decreased this month to -37%.
* A record high net 48% of investors surveyed indicate equities are overvalued.
* Goldilocks is now the consensus view for the global economy, with a record high 56% of
investors expecting above-trend growth and below-trend inflation.
* Allocation to global equities rises to net 49% overweight, the highest level since
April 2015.
* Pessimism toward UK equities continues to rise, as net 37% underweight marks the
return to lows last seen during the financial crisis.
* Allocation to Japanese equities rises to net 23% overweight, the highest level in two
years.
* Long Nasdaq is considered the most crowded trade (34%) for the sixth time this year,
followed by Short volatility (26%) and Long US/EU/EM high yield corporate bonds (18%).
* Investors are split on the likely impact of Fed balance sheet reduction and ECB
tapering on equities, with 42% expecting lower stock prices and 35% expecting stocks to go
higher.
* Investors eye central banks, with 27% of those surveyed indicating the biggest tail
risk to the markets is a policy mistake from the Fed/ECB; the top three are rounded out by
a crash in global bond markets (22%) and a flash crash caused by "market structure" (13%).
"Icarus is flying ever closer to the sun," said Michael Hartnett, chief investment
strategist, "and investors' risk-taking has hit an all-time high. A record high percentage
of investors say equities are overvalued yet cash levels are simultaneously falling, an
indicator of irrational exuberance."
Ronan Carr, European equity strategist, added that, "UK sentiment is severely depressed
and remains the least popular country market for European investors."
"Global fund managers see the profit outlook in Japan as favourable amid a strong
earnings season," said Shusuke Yamada, chief Japan FX/Equity strategist. "Investors
continue to see Japan equities as undervalued relative to other markets and say they want
to overweight Japan for the next 12 months."
BofAML's November Global FMS was conducted 3-9 November; 206 panellists with US$610bn
AUM participated total. 178 participants with US$533bn AUM responded to the Global FMS
questions and 87 participants with US$201bn AUM responded to the Regional FMS questions.
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