The message from BofA ML survey of global fund managers
The gap between profit expectations and market valuations is widening globally. In a June 2017 Bank of America Merrill Lynch (BofA ML) survey, 44% of global fund managers said that equities were overvalued, the highest response on record. At the same time, 43% said that global profits will be higher in a year, down from 58% in January. The survey warned, “‘Excess valuation’ coinciding with high global profit expectations shows that market vulnerability to profit weakness is very high.”
In the July survey, 41% said that profits will be higher in a year, the lowest proportion since the US election. And in August, only 33% said profits would improve over the next 12 months, while 46% said that equity markets were overvalued, a record high.
The survey warns in its August survey of an “ominous inflection point in its profits expectations indicator” and that a further deterioration was likely to cause risk-off trades.
Yet, the survey said that their “sell” button had not been triggered, because fund managers were sitting on a large pile of cash. The similarities with Indian markets are obvious: in India too, there have been many voices saying the markets are overvalued and profit expectations are falling, but at the same time, cash continues to flow into equities.
The chart shows allocations made by fund managers in equities. In August, the eurozone continues to attract the most fund managers, followed by emerging markets and Japan. UK equities are the most unloved, according to the BofA ML survey.