A record high (net 16 per cent) of investors say they are taking above-normal levels of risk in their investment, according to a new report from Bank of America Merrill Lynch (BofAML).

The net share of investors taking out protection against a correction in markets decreased this month to -37 per cent, said the BofA Merrill Lynch November Fund Manager Survey

Highlights of the report include:

•    Average cash balance falls to 4.4 per cent from 4.7 per cent last month, the lowest level since October 2013 and below the 10-year average of 4.5 per cent

•    A record high net 48 per cent of investors surveyed indicate equities are overvalued

•    Goldilocks is now the consensus view for the global economy, with a record high 56 per cent of investors expecting above-trend growth and below-trend inflation

•    Allocation to global equities rises to net 49 per cent overweight, the highest level since April 2015

•    Pessimism toward UK equities continues to rise, as net 37 per cent underweight marks the return to lows last seen during the financial crisis

•    Allocation to Japanese equities rises to net 23 per cent overweight, the highest level in two years

•    Long Nasdaq is considered the most crowded trade (34 per cent) for the sixth time this year, followed by Short volatility (26 per cent) and Long US/EU/EM high yield corporate bonds (18 per cent)

•    Investors are split on the likely impact of Fed balance sheet reduction and ECB tapering on equities, with 42 per cent expecting lower stock prices and 35 per cent expecting stocks to go higher

•    Investors eye central banks, with 27 per cent of those surveyed indicating the biggest tail risk to the markets is a policy mistake from the Fed/ECB; the top three are rounded out by a crash in global bond markets (22 per cent) and a flash crash caused by “market structure” (13 per cent)

 “Icarus is flying ever closer to the sun,” said Michael Hartnett, chief investment strategist, “and investors’ risk-taking has hit an all-time high. A record high percentage of investors say equities are overvalued yet cash levels are simultaneously falling, an indicator of irrational exuberance.”

Ronan Carr, European equity strategist, said: “UK sentiment is severely depressed and remains the least popular country market for European investors.”

“Global fund managers see the profit outlook in Japan as favourable amid a strong earnings season,” said Shusuke Yamada, chief Japan FX/Equity strategist. “Investors continue to see Japan equities as undervalued relative to other markets and say they want to overweight Japan for the next 12 months.” – TradeArabia News Service