A recent Bank of America survey reveals that global equities have become the most favored asset class among institutional investors, with risk appetite reaching its highest point in 15 years. The survey indicates that fund managers' cash holdings have dropped to their lowest level since 2010, with 34% of respondents expecting global stocks to be the best-performing asset by 2025. Conversely, there is a net reduction in bond holdings.
Strategist Michael Hartnett notes that investors are heavily investing in stocks and shorting other assets, driven by expectations of strong economic growth and potential U.S. interest rate cuts this year. Global stock markets have surged over 60% from their 2022 lows, fueled by optimism surrounding artificial intelligence and signs of the U.S. economy avoiding a recession. While U.S. tech stocks have led the rally, investors are now turning to more affordable European stocks.
According to the survey, around 89% of respondents believe U.S. stocks are overvalued, marking the highest percentage since at least April 2001. As investors shift towards European equities, confidence in the so-called "U.S. exceptionalism" is waning. The survey predicts that the European Stoxx index will outperform the tech-heavy Nasdaq 100 index this year. By 2025, the European index has already risen 12%, compared to the Nasdaq 100's 5% increase.
An indicator measuring cash levels, stock allocations, and global growth expectations rose from 6.1 to 6.4, still below the "bubble" level of December 2024. Expectations for a global economic recession have dropped to a three-year low, with about 77% of fund managers anticipating a Federal Reserve rate cut in 2025.
