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Has the US exceptionalism conviction peaked?
New data indicates that investor conviction in US exceptionalism has peaked, according to Bank of America.
In its latest fund manager survey (FMS), which included 205 participants managing US$482 billion in assets, “long Mag 7” was identified as the most crowded trade by 56 per cent of respondents, followed by a long US dollar by 17 per cent.
“The US ‘exceptionalism’ theme has been characterised by a combo of strong US dollar and an equity bull market led by the ‘Magnificent 7’ group of stocks,” the bank said.
Ultimately, a total of 73 per cent of FMA investors perceive “long US exceptionalism” – comprising both Mag 7 and US dollar – as the most crowded trade, down from the three-year high of 80 per cent reached in January.
Importantly, 89 per cent of FMS investors said the US stock market is overvalued, the highest number since the survey began in 2001.
“Note that decade-to-date, an average 81 per cent of FMS investors have consistently viewed US equities as overvalued.”
At the same time, FMS investors now view global equities as the best performing asset class, at 34 per cent versus 21 per cent a month prior, overtaking US equities.
In fact, US equities fell by two spots in just a month, with gold also having surpassed the asset class to become the preferred asset of 22 per cent of participants.
Turning to best-performing indexes, FMS investors now see Euro Stoxx (22 per cent) outperforming the Nasdaq (18 per cent).
“The Hang Seng Index (i.e. China equities) is seen as the best performing equity index according to 18 per cent of FMS investors (up from 10 per cent January).”
Moreover, the bank’s broadest measure of FMS sentiment, based on cash levels, equity allocations, and global growth expectations, edged up from 6.1 to 6.4 in February, signalling rising investor optimism. However, it remains below the levels seen in December.
Turning to FMS asset allocations, investors were the most overweight in stocks, banks, healthcare and US markets versus being the most underweight in UK markets, resources and bonds.
Equity allocations were net 35 per cent overweight in February but down 6 percentage points month-on month. Meanwhile, bond allocations are net 11 per cent underweight from net 20 per cent underweight a month ago.
Similarly to bonds, cash allocations remained underweight at net 6 per cent but improved from net 11 per cent underweight.
When asked on asset performance in the advent of a full-blown trade war, a large majority of FMS participants (58 per cent), according to Bank of America, said they view gold as the best performing asset, followed by the US dollar (15 per cent), and the 30-year US Treasury (9 per cent).
Conversely, only 2 per cent said equities would perform best, trailing bitcoin (3 per cent) and cash (4 per cent).
AUTHOR
Jessica Penny
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