Globally, investors are upbeat and have dug into their cash piles, although there are contrasting views about specific markets, such as those of Japan and the UK.

Investors’ confidence has hit an all-time high and a benign “Goldilocks” view – not too hot/too cold – of the global economy is now consensus, which carries certain risks, Bank of America Merrill Lynch said in its November edition of its global fund managers’ survey. 

Cash balances fell to 4.4 per cent of all portfolios, below a 10-year average of 4.5 per cent and down from 4.7 per cent in November. The level is at the lowest point since October 2013, the report said. 

A record high (net 16 per cent) of investors say they are taking above-normal levels of risk in their investment; the net share of investors taking out protection against a correction in markets decreased this month to -37 per cent, showing a marked degree of confidence in market performance. 

Against that, a record high net 48 per cent of investors surveyed indicate equities are overvalued. A record high 56 per cent of investors expecting above-trend growth and below-trend inflation.  Allocation to global equities rose to net a 49 per cent overweight position, the highest level since April 2015.

Within specific countries, investors have turned more cautious about UK equities; a net 37 per cent of investors were underweight these equities in November and that level marks the return to lows last seen during the financial crisis. On the flipsides, allocation to Japanese equities rose to a net 23 per cent overweight, the highest level in two years.

Examining trades involving the most “crowding” of positions, the survey found that being long of the  Nasdaq market is considered the most crowded trade (34 per cent) for the sixth time this year, followed by being short of volatility (26 per cent) and long of US/EU/EM high-yield corporate bonds (18 per cent).

Investors are split on the likely impact of Fed balance sheet reduction and ECB tapering on equities, with 42 per cent expecting lower stock prices and 35 per cent expecting stocks to go higher.

“Icarus is flying ever closer to the sun,” Michael Hartnett, chief investment strategist, said: adding: “and investors’ risk-taking has hit an all-time high. A record high percentage of investors say equities are overvalued yet cash levels are simultaneously falling, an indicator of irrational exuberance.”

BofAML's November Global Fund Manager Survey was conducted from 3 to 9 November, with panelists for the survey together holding $610 billion of assets under management.