LONDON May 16 Investors have deepened their
love affair with euro zone stocks and pushed allocations to
two-year highs -- the third-highest on record -- while buoyant
company earnings signal an extension of the global equity bull
run, a survey showed on Tuesday.
The latest monthly survey by Bank of America Merrill Lynch
showed money managers continued to swing away from U.S. equities
They remained bullish on stocks overall, however, with more
than half those polled -- the most in three years -- predicting
that global profits would improve over the next 12 months.
"Sentiment bullish, but irrationality not yet visible
despite all-time highs in credit and equity markets, robust
global (earnings), benign French election result," BAML said in
its poll of funds managing close to $650 billion.
While the majority of those surveyed expected the so-called
Goldilocks scenario of high growth and low inflation, BAML was
more bullish, predicting more upside to global stocks.
"You see Goldilocks, we see Icarus," it added.
A range of leading stock indices have hit record highs this
week, including the MCSI Global index, S&P 500,
German DAX and Britain's FTSE 100.
The poll found enthusiasm for euro zone stocks continuing to
grow in May, with a net 59 percent of funds overweight versus 48
percent in April.
Euro zone stocks are approaching two-year highs,
having rallied by about 10 percent so far this year on the back
of a strong economic recovery, robust company earnings and
voters' rejection of populist parties in elections.
A fifth of investors surveyed by BAML considered European
share valuations excessive. In contrast, 82 percent viewed U.S.
stocks as expensive, just off April's record high, while the
Nasdaq technology index was deemed the most crowded trade.
While the net U.S. equity underweight position eased
slightly to 17 percent in May, relative positioning versus the
rest of the world was the lowest since November 2007 at minus 38
Overall, equity allocations rose in May to net 45 percent
overweight, though funds trimmed underweight positions in bonds
to a net 57 percent.
BAML reiterated that room remains for more gains on risky
assets, based on the average 4.9 percent cash holding, which it
said was too high to denote the "big top" in markets
In terms of potential pitfalls, Chinese credit tightening
was feared most, displacing European Union disintegration as the
biggest tail risk.
(Reporting by Sujata Rao; Editing by Jamie McGeever and David