A growing proportion of money managers believe equity and bond markets are overvalued, said Bank of America Merrill Lynch’s monthly fund manager survey.
A net 25% of respondents now consider global equities overvalued, the highest level since 2000 and up from a net 23% in March and a net 8% in February. At the same time, a net 84% believe bond markets are overvalued, the highest level on record and up from a net 75% in March.
In terms of geography, a net 68% of global respondents consider the U.S. the most overvalued region globally, while Europe and Japan continue to be seen as undervalued.
A net 13% of managers surveyed cited “equity bubbles” as the biggest tail risk markets are facing, up from a net 12% in March and a net 2% in February.
“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,” said BofA Merrill Lynch in a news release about the survey results. Eighty-five percent of managers surveyed expect the Federal Reserve to raise rates this year.
On currency, a net 13% of investors believe the U.S. dollar is overvalued vs. a net 2% in March and a net 12% saying it was undervalued in February. Meanwhile, a net 8% and 2% of managers believe the euro and yen, respectively, are undervalued compared to a net 24% and 12% saying those currencies were overvalued in February. Still, the majority of managers expect the dollar to appreciate and the euro to depreciate over the next 12 months.
In terms of asset allocation, a net 46% of managers reported being overweight eurozone equities in April, down from a record net 60% the previous month. A net 37% also said they want to overweight the region over the next year vs. a net 63% in March.
A net 38% of managers are now overweight Japanese equities, down from a net 40% in March. However, a net 22% said they want to overweight Japan in the next year, up from a net 10% last month.
The survey also found that more managers believe value sectors globally will outperform growth in the coming year (a net 25% vs. a net 6% in March).
The survey of 177 managers with a total of $494 billion in assets under management was conducted April 2-9.