LONDON, June 13 (Reuters) - A record number of investors say equities are overvalued and three-quarters say internet stocks are expensive or in a bubble, a Bank of America Merrill Lynch fund manager poll showed on Tuesday, with tech-heavy Nasdaq deemed the most crowded trade.
The survey, which polled 210 asset managers with $596 billion under management, was carried out June 2-8, just ahead of a two-day rout in U.S. tech stocks led by Apple, Facebook, Microsoft and Alphabet.
The Nasdaq Composite ended Monday down 0.5 percent, extending Friday’s 1.8 percent fall. The sell-off was triggered by reports Apple was using slower modems in upcoming iPhones compared with those in rivals’ phones, and a bearish Goldman Sachs note on the mega-cap tech sector.
In the BAML poll, a net 44 percent of investors said equities were overvalued, up from a net 37 percent last month, and beating the previous record high set in 1999’s dotcom bubble.
Being long Nasdaq was seen as the most crowded trade for the second month in a row, cited by 38 percent, up from 26 percent in May.
Some 57 percent said internet stocks were “expensive”, with 18 percent describing them as “bubble-like”. A net 84 percent of respondents said the U.S. was the most overvalued region for equities, a new all-time high.
Despite these concerns, investors raised their global tech sector allocation to a net 37 percent overweight from last month’s 33 percent overweight. Their overall U.S. equity allocation rose slightly to a net 15 percent underweight from a net 17 percent underweight last month.
The S&P 500’s technology sector has ballooned nearly 14 percent since President Donald Trump’s inauguration in January to its most expensive since early 2008 in terms of price to earnings expectations.
“Market vulnerability to profit weakness is very high, with investors’ perception of excess valuation coinciding with high global profit expectations,” said Michael Hartnett, chief investment strategist at BAML.
A net 47 percent of investors said global monetary policy was too stimulative, the highest since April 2011.
But in contrast to the 1999 bubble, BAML detected less irrational exuberance, as cash levels rose to 5 percent from last month’s 4.9 percent, remaining above the 10-year average of 4.5 percent.
European and emerging market equities were viewed as undervalued by a net 18 percent and a net 48 percent respectively. However, the allocation to eurozone equities is near two-year highs at a net 58 percent overweight.
“It leaves sentiment reported on Europe continuing to look very bullish, which may provide a headwind to renewed outperformance for European stocks,” said Ronan Carr, European equity strategist. European stocks are up around 7 percent year-to-date.
Chinese credit tightening ranked as the top tail risk for the second straight month, chosen by 31 percent of poll participants. Eighteen percent selected a crash in global bond markets. (Editing by Ed Osmond)