A record level of global investors currently think shares are overvalued, while an increased amount of them are taking more risks with their investment choices than before, a survey shows, writes Geoff Percival.
The latest monthly fund managers survey from Bank of America Merrill Lynch said a record high 16% of investors are taking “above normal” levels of risk in their investment. It added that a net 48% of global investors — also rated as a record high — feel that equities are currently overvalued.
“Icarus is flying ever closer to the sun and investors’ risk-taking has hit an all-time high,” said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch.
“A record high percentage of investors say equities are overvalued, yet cash levels are simultaneously falling — an indicator of irrational exuberance,” he added.
Pessimism towards UK stocks continues to worsen, the survey showed, with investors turning away from British equities to an extent not seen since during the financial crisis nearly a decade ago. “UK sentiment is severely depressed and remains the least popular country market for European investors,” said Bank of America’s European equity strategist Ronan Carr.
Conversely, Japanese shares are rising in popularity; investors seeing them as undervalued compared to other markets and ‘overweighting’ their portfolios with Japanese shares by the highest level for two years — buoyed by a strong earnings season for Japan firms.
In terms of biggest risks to equity values, investors cited policy mistakes by the ECB and the Federal Reserve; a crash in global bond markets and a flash-crash caused by ‘market structure’.
Just last month, JP Morgan said that valuations of big Internet stocks — such as Alibaba, Tencent, Facebook, Amazon and Google — which have led equity market movement this year do not seem “unreasonably high just yet”.
“Potential regulation is the biggest risk,” it added.
Meanwhile, the cautious tone that swept into markets in recent days persisted yesterday, as equities fell around the world and bonds advanced with gold. A fall in commodity stocks and sustained profit-taking sent European shares to an eight-week low and their seventh straight session of losses.
Britain’s FTSE 100 declined 0.4% and Germany’s export-oriented DAX index fell 0.6%, weighed down by a stronger euro. The S&P 500 Index fell for the fourth time in five days, as new obstacles emerged to the US overhauling taxes. European stocks and Japan’s Topix index are in their longest losing streaks in a year.
Additional reporting Bloomberg and Reuters