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BofA Merrill Lynch May Fund Manager Survey finds investors are bullish; macro expectations of high growth and low inflation at record high

China replaces European disintegration as the most commonly cited tail risk for the first time since January 2016, with 31% of global fund managers citing Chinese credit tightening as the biggest risk in the market

  • Investors’ macro expectations find global economy to be just right, with a record high 34% citing a Goldilocks scenario of high growth and low inflation
  • China replaces European disintegration as the most commonly cited tail risk for the first time since January 2016, with 31% of global fund managers citing Chinese credit tightening as the biggest risk in the market
  • Long Nasdaq is seen as the most crowded trade for the first time, knocking long U.S. dollar off the top spot after five months; despite this, net 23% of investors still say the USD is overvalued
  • Profit expectations are at a three-year high as net 56% of respondents say global profits will improve over the next 12 months
  • FMS cash levels remain unchanged from April at 4.9%, still above the 10-year average of 4.5%
  • Investors’ views on valuation continue to vary by region: net 82% of fund managers think the U.S. is the most overvalued region, near April’s all-time high; meanwhile, Eurozone and EM equities are seen as undervalued, at net 20% and net 44% respectively
  • Net 59% of investors are overweight Eurozone equities, up from net 48% overweight in April and the highest allocation since March 2015
  • Allocation to UK equities rises to a net 27% underweight versus net 34% underweight last month
  • Japan equity allocation fell for the second month to a net 12% overweight as investors increase their allocation into European equities

“Investor sentiment is bullish,” said Michael Hartnett, chief investment strategist. “But irrationality is not yet visible despite all-time highs in credit and equity markets, robust global EPS and a benign French election result.” Ronan Carr, European equity strategist, added that, “Allocation to Eurozone equities is at its third highest level on record. The recent outperformance seems due for a pause, especially versus the U.S.”

Commenting on the Japanese market, Shusuke Yamada, chief Japan FX/equity strategist said, “Although global investors’ allocation to Japanese equities declined for a second month; easing risk factors, better currency levels, and fundamentals hint of a possible summer rally.”

Next Finance 17 May
P.S.

BofAML’s May’s Global Fund Manager Survey was conducted May 5-11; 213 panellists with $645bn AUM participated total. 184 participants with $583bn AUM responded to the Global FMS questions and 99 participants with $254bn AUM responded to the Regional FMS questions.

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