Investors are turning to Eurozone stocks from US equities, according to the Bank of America Merrill Lynch April global fund manager survey. This represents the fifth largest rotation since 1999.
Allocation to Eurozone equities has risen to 15-month highs (net 48 percent overweight) while allocation to US equities have dropped to the lowest levels since January 2008 (net 20 percent underweight).
Furthermore, the survey showed, net 44 percent of investors are overweight EM equities, up from net 18 percent underweight in March and the highest allocation in five years.
The survey also noted that a record number of investors (net 83 percent) find US stocks to be overvalued, while 32 percent say global equities are overvalued, near 17-year highs.
Only five percent of investors surveyed expect Congress to pass tax reform policies before its summer recess.
FMS cash levels have risen to 4.9 percent from 4.8 percent in March, remaining above the 10-year average of 4.5 percent.
According to the survey, net 21 percent of fund managers think the US dollar is overvalued, down from net 32 percent last month, but long US dollar is still perceived as the most crowded trade (27 percent).
Fund managers cite EU disintegration as the biggest tail risk (23 percent), though this fear has dropped in the past two months, closely followed by a delay in US corporate tax reform (21 percent) and trade war (17 percent).
Within Europe, the UK remains the least preferred region and the relative positioning versus Eurozone equities is within one percent of an all-time low.
Investors think EM equities (47 percent) and the Euro (30 percent) remain undervalued.
Japan equity allocation saw its first observable decline since the US election, but investors are still overweight (15 percent).
“Investors are showing love for Europe and scrambling out of US equities, as the majority find US stocks overvalued and perceive a risk of delayed US tax reform,” said Michael Hartnett, chief investment strategist.
Ronan Carr, European equity strategist, added: “In spite of the French Presidential election starting in less than a week, investors’ perception of Europe is increasingly bullish. Although we agree on the allure of Europe’s earnings recovery, complacency looks extremely high.”
Commenting on the Japanese market, Shusuke Yamada, chief Japan FX/equity strategist said: “Investors’ perception of Japanese equities is being negatively influenced this month by the lowered expectation for US tax reform and the tail risk of EU disintegration, which weigh over EUR/JPY and USD/JPY.”