BofA Merrill Lynch Fund Manager Survey Finds Concerns of Overvaluation in Both Equity and Bond Markets

Investors see growing overvaluations in both bonds and equities and have signaled concern about a valuation bubble forming, according to the BofA Merrill Lynch Fund Manager Survey for April.

The proportion of global investors saying equity markets are overvalued has reached its highest level since 2000. A net 25 percent of respondents to the global survey say that global equities are currently overvalued, up from a net 23 percent in March and a net 8 percent in February. This is still, however, short of the record-high level of a net 42 percent in 1999.

At the same time, the proportion of respondents saying that bond markets are overvalued has reached a new high in the survey’s history. A net 84 percent of the global panel says that bonds are overvalued, up from a net 75 percent in March. At the same time, 13 percent believe that “equity bubbles” are the biggest tail risk markets are facing, up from 2 percent in February.

Global respondents believe that the focus of overvaluation is on the U.S. – a net 68 percent of the panel says that the U.S. is the most overvalued region globally. Global panelists believe that all other regions, including Europe and Japan remain undervalued.

These assessments come as investors increasingly accept that U.S. rates will rise at a time when the European Central Bank and the Bank of Japan are engaged in monetary stimulus. Although a majority of investors expect no Fed hike before the third quarter, 85 percent expect a rate rise to take place this year.

“April’s survey offers further proof that global investors are front-running global monetary policy,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research. “We are seeing a form of rational exuberance in Europe where a positive view on stocks is supported by fundamentals – but investors no longer believe valuations are cheap,” said Manish Kabra, European equity and quantitative strategist.

Investors signal concerns over dollar valuation

Faced with the prospect of the Fed starting to tighten monetary policy, investors believe that currencies face higher volatility. Eighteen percent of the global panel says that currencies is the asset class most vulnerable to volatility, a rise of 5 percentage points since March.

More investors say the dollar is overvalued against the euro and the yen. The proportion of respondents saying the U.S. dollar is overvalued has risen to a net 13 percent – a big swing from February when a net 12 percent took the view the dollar is undervalued.

A net 8 percent believe the euro is undervalued this month, compared with a net 24 percent saying it was overvalued two months ago. A small majority of the panel (a net 2 percent) now believes the yen is undervalued, compared with a net 12 percent saying it was overvalued two months ago. Despite their view on valuations, however, a majority of investors still expect the dollar to appreciate, and the euro to depreciate, in the coming year.

Edge has come off the euro exuberance

The highs of euro-mania seen in March have eased, but European equities retain much of their allure in April’s survey. A net 46 percent of asset allocators remain overweigh eurozone equities, down from a record net 60 percent in March. A net 37 percent of investors say the eurozone is the region they most want to overweight in the coming 12 months, though this too is down from a net 63 percent in March.

The regional survey shows that Europeans have changed their perspective on valuation. A net 10 percent say that European equities are overvalued this month, up from a net 3 percent taking the view they were undervalued in March. However, a net 73 percent expect better corporate profits in the next year, up from a net 69 percent last month.

Japan also remains in favor. While the proportion of asset allocators overweight Japanese equities ticked down two percentage points over the month to a net 38 percent, the reading remains the fourth-highest since 2006. Furthermore, the proportion of investors seeking to overweight Japan in the coming year rose to a net 22 percent from a net 10 percent.

Shift towards value over growth?

While asset allocators are currently favoring growth sectors such as Technology and Discretionary, global investors have indicated that they will start prioritizing value over growth investing. The survey shows a spike in the proportion of panelists predicting that “value” will outperform “growth” in the coming year – up to a net 25 percent from a net 6 percent in March. The shift is even more pronounced among European investors responding to the Regional Survey. A net 17 percent say that value will outperform growth this month, compared with a net 22 percent taking the opposite view in March, a monthly swing of 39 percentage points.

Fund Manager Survey
An overall total of 177 panelists with US$494 billion of assets under management participated in the survey from 2 to 9 April 2015. A total of 145 managers, managing US$392 billion, participated in the global survey. A total of 83 managers, managing US$172 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.

BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers over 3,400 stocks and 1,100 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2014 by Institutional Investor magazine; No. 1 in the 2015 Institutional Investor All-Europe Fixed Income Research survey; No. 1 in the 2014 Institutional Investor All-Europe survey; No. 1 in the 2014 Institutional Investor All-Asia survey for the fourth consecutive year; No. 1 in the Institutional Investor 2014 Emerging EMEA Survey; and No. 2 in the 2014 Institutional Investor All-America survey. The group was also named No. 2 in the 2014 All-China survey and No. 2 in the 2014 All-America Fixed Income survey for the third consecutive year.

Bank of America
Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 48 million consumer and small business relationships with approximately 4,800 retail banking offices and approximately 15,800 ATMs and award-winning online banking with 31 million active users and approximately 17 million mobile users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a registered broker-dealer and a member of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.

Visit the Bank of America newsroom for more Bank of America news.

www.bankofamerica.com

Contacts:

Reporters May Contact:
Melissa Anchan, Bank of America, +1.646.855.3152
melissa.anchan@bankofamerica.com
Tomos Rhys Edwards, Bank of America, +44.20.7995.2763
tomos.edwards@baml.com

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.