Most investors see stocks as overvalued for first time since 2004, BofAML survey shows
Investor confidence in the global economy jumped in November as fund managers predicted rising corporate profits and the US political crisis eased.
A net 67 percent of respondents to the Bank of America Merrill Lynch (BofAML) November fund manager survey expect the world’s economy to strengthen over the coming 12 months. The result marks an increase of 13 percentage points from October, when a net 54 percent of investors predicted global growth.
Markets have been encouraged by the agreement between feuding political factions in the US to ease the debt ceiling crisis that partially shut down government and brought the country to the brink of default in October. Further reassurance has come from the US Federal Reserve’s announcement that it would hold off on its objective of cutting back its monthly bond purchases under its quantitative easing program as US stocks reached record highs.
With the increased optimism comes a rising impression that equity gains have been excessive, with a net majority of investors saying stocks are now overvalued. It’s the first such reading since 2004, according to BofAML. Cash holdings, meanwhile, have grown to 4.6 percent of investors’ portfolios.
‘Investors remain reluctant bulls,’ says Michael Hartnett, chief investment strategist at BofAML Global Research, in a note to journalists. ‘Who would have thought all-time highs in US stock prices would coincide with high cash levels?’
Investor optimism grew most in connection with emerging markets. In the November survey, a net 44 percent of investors predict rising corporate profit in emerging markets, from only 11 percent in October.
A net 59 percent of investors also foresee rising profit among European companies over the next 12 months, marking an increase from a net 49 percent in the October survey. A net 9 percent of investors, however, predict that any gains will not exceed 9 percent.
The survey organizers in November added a new question, asking investors to predict when the Fed will likely cut back on its quantitative easing program: almost half (48 percent) predict the Fed will do so in March, while 18 percent predict the second quarter of 2014.
In total, 222 fund managers with $599 bn in assets under management took part in the global survey from November 1 to November 7.
