Bank warns that equity markets are ‘overvalued’

The number of investors saying equity markets are overvalued rose to a record high of 46 per cent in August, Bank of America Merrill Lynch’s (BAML) monthly fund manager poll said yesterday.

The survey, which polled 202 asset managers with $587 billion under management, was carried out between 4-10 August and showed cash levels at what one analyst called a “stubbornly high” 4.9 per cent, whilst the allocation to equities fell to a net 36 per cent overweight.

European investors’ cash weighting rose to 5.3 per cent, the highest reading since March 2003.

BAML noted an “ominous inflection point” in the profit expectations indicator, with only a net 33 per cent of investors saying corporate profits would improve over the next 12 months. This was down 25 percentage points from January to the lowest level since November 2015.

The bank suggested this was a warning sign for equities over bonds, high yield over investment grade and cyclical sectors over defensive ones.