Fund managers are cutting US equities exposure in favour of European equities despite the region's upcoming elections, the latest Bank of America Merrill Lynch Fund Manager survey has revealed.
The survey, carried out between 6 and 12 April, found the number of fund managers overweight eurozone equities had reached a 15-month high, with 48% of respondents overweight the region.
Within Europe, the UK was the least preferred region and its relative positioning versus European equities is within 1% of an all-time low.
Furthermore, this was the fifth largest rotation out of US equities into European equities since 1999, with 20% of managers saying they were underweight US equities; the lowest allocations since January 2008.
Ronan Carr, European equity strategist at BofA Merrill Lynch, said: "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."
Despite investors being overweight, 23% of managers cited the break-up of the European Union as the biggest tail risk while 17% said a trade war.
However, 21% of respondents said a delay in US corporate tax reform was their biggest concern. US President Donald Trump's failure to pass his healthcare bill through Congress due to opposition from his own party caused a sell-off in the US equity market last month, leading to further doubts on whether he can implement his fiscal and tax reforms.
Michael Hartnett, chief investment strategist at BofA Merrill Lynch, said: "Investors are showing love for Europe and scrambling out of US equities, as the majority find US stocks overvalued and perceive a risk of delayed US tax reform."
Elsewhere, allocation to emerging market equities increased significantly to 44% holding overweight positions, the highest allocation in five years.
In Japan, allocation to equities saw its first major decline since the US election in November but 15% of investors remain overweight.
Shusuke Yamada, chief Japan FX/equity strategist at BofA Merrill Lynch, 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."
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