The highest number of managers since 1998 believe that the stock market is “overvalued”, as cash levels are collapsing and growth expectations jump, according to the latest Bank of America Merill Lynch fund manager survey.
Although investor sentiment is past “peak pessimism”, optimism in June is both fragile and neurotic, with a second wave of the Covid-19 pandemic posing the biggest tail risk, the bank said in its report.
Only 18% of the 212 survey panellists expect a V-shaped recovery, against the 64% who believe we are headed for a U- or even W-shaped recovery.
June also saw the largest fall in cash levels since August 2009, from 5.7% to 4.7% (led by institutional investors not retail investors.)
Meanwhile, hedge fund net equity exposure soared from 34% to 52% – the highest since September 2018 as they chase the “pain trade” higher.
The report also found that fear of prolonged recession was down to net 46% in June from 93% in April.
But how the world will look post-Covid was a key issue for global fund managers, with large structural shifts expected.
Nearly 70% of fund managers expect to see supply chain reshoring in response to the pandemic, whilst 48% foresee greater protectionism, and 43% predict higher taxation.
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