Equity, Bond Markets Are Overcooked - BoA/Merrill Lynch Global Investor Survey

Amisha Mehta Reporter 15 April 2015

Equity, Bond Markets Are Overcooked - BoA/Merrill Lynch Global Investor Survey

Investors worldwide are increasingly viewing equities and bonds as overvalued, according to BoA Merrill Lynch in its latest monthly poll of investors.

A record number of global investors believe equity and bond markets to be overvalued, according to the Bank of America Merrill Lynch fund manager survey for April.

A quarter of fund managers surveyed now consider equity markets to be higher than they consider fair value, which is up from the 23 per cent holding the same view last month and at a 15-year high.

Concerns were notably high for the 13 per cent who see “equity bubbles” as the biggest tail risk markets are currently facing.

The results come at a time when investors expect that the US Federal Reserve will almost certainly be the first major central bank to begin tightening monetary policy and start to move rates, albeit very slowly, back towards some form of "normality" from its current loose stance.

Meanwhile, the proportion of those deeming bond markets to be overvalued climbed 9 per cent from March to a record high of 84 per cent.

As for regional overvaluation, the US came out on top, while Europe and Japan were considered undervalued. "These assessments come as investors increasingly accept that US rates will rise at a time when the European Central Bank and the Bank of Japan are engaged in monetary stimulus,” said BoA Merrill Lynch.

Indeed, the majority of investors surveyed expect the US Federal Reserve to hike interest rates this year but not before the third quarter. Currency volatilities were flagged as a likely knock-on effect of the rate hike as a net 13 per cent said the US dollar is overvalued, compared to the net 12 per cent who said the dollar was undervalued last month.

"April’s survey offers further proof that global investors are front-running global monetary policy,” said the chief investment strategist at BoA Merrill Lynch Research, Michael Hartnett.

"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.

In other findings, those in the overweight camp for eurozone equities dipped from the record net 60 per cent in March to 46 per cent this month. However, the region was still hailed as the most popular to overweight in the coming year.

The survey also identified a notable spike in those predicting “value” will outperform “growth” over the next year – the figure more than tripled to 25 per cent over the last month. 

The survey, conducted from 2 to 9 April, took its data from 177 panelists with $494 billion of assets under management.


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