Investors have taken their largest underweight position in US equities since before the financial crisis, citing expensive valuations and an overvalued dollar.
A monthly fund manager survey by Bank of America Merrill Lynch showed a net 19% of respondents were underweight the nation’s equities in March, down from a net 6% who overweighted them in February.
“Bullishness towards European stocks has reached uncharted territory.” —Manish Kabra, BoAMLThis was the poorest faith shown in the asset class since January 2008, the bank said, adding that a net 35% of respondents wanted to move out of the asset class, marking the most bearish reading for nearly 10 years.
An increasing number of fund managers said they believed the Federal Reserve would hike interest rates in the second quarter of the year, whereas many thought this would be left to the third quarter, when questioned last month.
As favor turned from the US, survey respondents said they were increasingly keen on European equities. A net 63% of them said the region was their most likely target to overweight in the next 12 months—the highest proportion feeling this way since the question was first asked in 2001.
“Bullishness towards European stocks has reached uncharted territory,” said Manish Kabra, European equity and quantitative strategist at the bank. “Demand for financials highlights confidence in domestic growth, while belief in European exporters is building on gains seen last month.”
But if sentiment was lukewarm towards US equities, emerging markets have seen fund managers running for the exit. A net 57% of investors said these assets were underweight allocation targets in the next 12 months.
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