'Irrational Exuberance' May Rule the Roost in Stock Markets

'Irrational Exuberance' May Rule the Roost in Stock Markets

'Irrational Exuberance' May Rule the Roost in Stock Markets

The November survey, which consisted of 209 panellists, found allocations to global equities had increased to net 49% overweight, the highest level since April 2015.

Levels of cash held in portfolios meanwhile fell to 4.4%, down from 4.7% last month and below the 10-year average of 4.5%.

The "Goldilocks" scenario, a combination of low inflation and strong growth, has become the "consensus" view for the global economy, with 56% of investors predicting above-trend growth and below-trend inflation.

Michael Hartnett, chief investment strategist at BofAML, said: "Icarus is flying ever closer to the sun and investors' risk-taking has hit an all-time high".

At the same time, a record net 16% of investors said they are taking above-normal levels of risk in their investment, despite the fact that a record high net 48% of investors surveyed thought that equities were now overvalued.

Fund managers are taking on record levels of risk despite believing stock markets are overvalued, according to a regular survey of investors by Bank of America Merrill Lynch.

He added: "A record high percentage of investors say equities are overvalued yet cash levels are simultaneously falling, an indicator of irrational exuberance".

On that point investors were divided, with 42% expecting shares to drop and 35% expecting further gains, BofA-Merrill said.

Meanwhile, pessimism towards the United Kingdom continued to rise, with a net 37% underweight marking a return to the lows last seen during the global financial crisis.

"Investors eye central banks, with 27% 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%) and a flash crash caused by "market structure" (13%)".

Following a strong earnings season, the survey found investors were net 23% overweight Japanese equities, the highest level in two years.

"UK sentiment is severely depressed and it remains the least popular country for European investors", said Ronan Carr, European equity strategist.