A net 23% of money managers believe the U.S. dollar is undervalued, the highest level since December 2014, and up from a net 19% in August, said Bank of America Merrill Lynch's monthly fund manager survey released Tuesday.
Meanwhile, a net 28% are underweight U.S. equity, up from 22% in August and the largest underweight reading since November 2007.
At the same time, a net 16% and 81% of managers, respectively, believe the euro and bond markets are overvalued, the highest readings in nearly a year.
The August survey also found that managers' global growth expectations continue to decline. About a net 25% of managers surveyed expect a stronger economy in the next 12 months, down from a net 35% in August and a net 62% at the beginning of 2017.
Fear of a conflict with North Korea is now seen as the biggest tail risk to the market, according to 34% of investors, up from 19% in August. Last month, a policy mistake by the Federal Reserve or European Central Bank was viewed as the biggest tail risk, according to 22% of investors. This month, it dropped slightly to 21%.
Other findings from the September survey include:
- Global equity and eurozone equity allocations fell to a net 34% overweight and 54% overweight, respectively, compared to a net 36% overweight and 56% overweight;
- Emerging market equity allocations rose to a net overweight of 47% compared to net overweight of 39% last month. The last time investors were this underweight the U.S. relative to emerging markets was December 2007.
- Commodity allocations rose to a net 4% underweight vs. a net 9% underweight in August; and
- Cash allocations fell to a net 33% overweight, down from a net 36% overweight last month.