BofA Merrill Lynch April Fund Manager Survey finds investors turning to Eurozone stocks from U.S. equities

• Investors are turning to Eurozone stocks from U.S. equities, the fifth largest rotation since 1999, despite the coming French election

• Allocation to Eurozone equities rises to 15-month highs (net 48% overweight) while allocation to U.S. equities plunge to the lowest levels since Jan 2008 (net 20% underweight)

• Net 44% of investors are overweight EM equities, up from net 18% underweight in March and the highest allocation in five years

A record number of investors (net 83%) find U.S. stocks to be overvalued, while 32% say global equities are overvalued, near 17-year highs

• Only 5% of investors surveyed expect Congress to pass tax reform policies before its summer recess

• FMS cash levels rise to 4.9% from 4.8% in March, remaining above the 10-year average of 4.5%

• A net 21% of fund managers think the U.S. dollar is overvalued, down from net 32% last month, but long USD is still perceived as the most crowded trade (27%)

Fund managers cite EU disintegration as the biggest tail risk (23%) - though this fear has dropped sharply in the past 2 months - closely followed by a delay in U.S. corporate tax reform (21%) and trade war (17%)

• Within Europe, the UK remains the least preferred region and the relative positioning versus Eurozone equities is within 1% of an all-time low

• Investors think EM equities (47%) and the Euro (30%) remain undervalued

Japan equity allocation saw its first observable decline since the U.S. election, but investors are still overweight (15%)

“Investors are showing love for Europe and scrambling out of U.S. equities, as the majority find U.S. stocks overvalued and perceive a risk of delayed U.S. tax reform,” said Michael Hartnett, chief investment strategist.

Ronan Carr, European equity strategist, added that, “In spite of the French Presidential election starting in less than a week, investors’ perception of Europe is increasingly bullish. Although we agree on the allure of Europe’s earnings recovery, complacency looks extremely high.”

Commenting on the Japanese market, Shusuke Yamada, chief Japan FX/equity strategist said, “Investors’ perception of Japanese equities is being negatively influenced this month by the lowered expectation for US tax reform and the tail risk of EU disintegration, which weigh over EUR/JPY and USD/JPY.”