Gold is viewed as the best protectionist investment, with a record net 15 per cent of investors considering it undervalued, according to the latest Bank of America (BofA) Merrill Lynch Fund Manager report.

The BofAML Global FMS Macro Indicator is in “buy” territory; cash levels dipped to 4.9 per cent in February, from 5.1 per cent in January, but levels are still higher than two months ago, which is bullish for risk assets, said the February Fund Manager Survey.

Macro optimism is surging, with 23 per cent of investors saying they expect a “boom” (above trend growth and inflation) compared to 1 per cent one year ago, it added.

Around 43 per cent said they expect “secular stagnation” (below trend growth and inflation), down sharply from 88 per cent one year ago.

Investors identified European elections raising disintegration risk as the biggest tail risk (36 per cent), closely followed by a trade war (32 per cent) and a crash in global bond markets (13 per cent).

A net 28 per cent of investors – the highest proportion since September 2006 – think the US dollar is overvalued, the BofAML report said.

Investors rank “protectionism” as the most likely bear market catalyst (34 per cent), followed by “higher rates” (28 per cent) and a “financial event” (18 per cent).

“Investor allocation and positioning continue to reflect expectations of a higher US dollar. A more hawkish stance by Janet Yellen at this week’s Humphrey Hawkins testimony could provide an upside catalyst for the dollar, given the dovish market pricing of rate hikes,” said Michael Hartnett, chief investment strategist.

Manish Kabra, European equity quantitative strategist, said: “While global fund manager sentiment towards Europe improved slightly, there is an increased fear of European political risk, with sentiment towards French equities particularly low.”

The BofAML Global FMS Macro Indicator is a year-on-year measure of investor inflation expectations, capex demand, risk appetite, sector positioning and equity vs. bond positioning.- TradeArabia News Service