BofA Merrill Lynch June Fund Manager Survey finds record number of investors consider equities overvalued. The report said net 44% of investors surveyed say equities are overvalued, the highest response on record and up from net 37% last month. Three quarters of investors surveyed say Internet stocks are expensive (57%) or bubble-like (18%). The survey revealed that Long Nasdaq (38%) tops the list for the second month in a row when fund managers are asked about the most crowded trade, jumping from 26% in May. Net 84% of respondents indicate the US is the most overvalued region for equities, a new all-time high; investors find European equities (net 18%) and EM equities (net 48%) to be undervalued. Further, the latest BofA Merrill Lynch survey noted that the average cash balance increased to 5.0%, up from 4.9% in May and still above the 10-year average of 4.5% Macro momentum has peaked as investors' expectations for faster growth have fallen to net 39%, down 23 percentage points since January. Inflation expectations have also continued to fall, with net 60% of fund managers calling for higher inflation, down from net 75% just two months ago. Net 47% of investors surveyed said global monetary policy is "too stimulative," the highest number in over six years. Only net 7% of fund managers say the US dollar is overvalued, down from net 23% in May and the lowest level since the US election The survey showed that Chinese credit tightening ranked as the top tail risk for the second straight month (31%), with 61% of investors saying tighter Chinese monetary policy will slow the country's PMI but have little impact on global growth. Allocation to Eurozone equities remained near two-year highs (net 58% overweight, down from net 59% overweight in May). Japan equity allocation fell sharply to net 1% overweight, down from net 12% overweight last month, the survey added. "Market vulnerability to profit weakness is very high," said Michael Hartnett, chief investment strategist, "with investors' perception of excess valuation coinciding with high global profit expectations." Ronan Carr, European equity strategist, added that "with the allocation to Eurozone equities still near historical highs, the pause in performance may last a while longer." — SG
