The percentage of investors overweight equities has reached the second-highest level to date, with continued gains expected through the rest of the year, driven by a global economic recovery, according to the latest survey by Bank of America Merrill Lynch (BofAML).
The percentage of investors that have boosted equity holdings has increased to a net 61 percent – the highest since 2011 and the second highest ever – the BofAML Fund Manager Survey for July shows. The figure is up from a net 48 percent in June and a net 37 percent in May.
‘Improving investor sentiment on global growth, inflation, equities and risk taking are all testament to a potential macro-normalization in the second half,’ says Michael Hartnett, chief investment strategist at BofAML Research, in a press release. ‘This could eventually feed into a normalization of rates. If growth picks up, volatility will rise, too.’
The survey shows a net 71 percent of investors expect inflation to accelerate over the next 12 months, an increase from a net 58 percent in the June survey, while a net 69 percent forecast that the global economy will strengthen over the next year. Despite this near-record optimism over the outlook for stocks, however, a net 21 percent of investors say equities are overvalued, the highest reading for the survey since 2000.
The number of investors calling on companies to increase capital spending has risen in July to 65 percent, setting an all-time record for the seventh month in a row. At the same time, a net 71 percent say companies are under-investing, the highest reading since the survey started asking the question in 2005. The percentage of investors that want companies to return excess cash in the form of dividends and buybacks has fallen to a five-year low of 18 percent.
Investors say the biggest risks to their portfolio include geopolitical crises such as the conflicts in Ukraine and Iraq. The fear of Chinese debt defaults, growing asset bubbles and deflation in the eurozone have all decreased in prominence for investors over the past month, the survey adds.
