Investors are the most bullish on U.S. equities in more than a year as a record number expect the dollar to appreciate in the next 12 months, a Bank of America Corp. survey showed.
A net 29 percent of 178 global fund managers, who together oversee about $482 billion, were overweight U.S. stocks this month, the highest since June last year. Eighty-three percent expect the greenback to strengthen, the highest in the history of the survey going back to 2001.
“Record optimism on the U.S. dollar is writ large,” Michael Hartnett, the New York-based chief investment strategist at Bank of America’s Merrill Lynch unit, wrote in the report to investors today. “Equity investors are long strong dollar plays” such as U.S. and Japanese stocks.
The dollar has risen the most this year out of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes amid expectation that the Federal Reserve will start to taper its monthly bond-purchase program. The Standard & Poor’s 500 Index (SPX) has surged 18 percent to a record.
Hedge funds and futures traders had $30.2 billion of wagers that the dollar would rally against the pound, yen and six other currencies as of July 9, up from $24 billion the previous week, according to CFTC data compiled by Nomura Holdings Inc. As recently as the end of last year, investors had $14.5 billion of net short positions, or bets that the currency would decline.
Allocations to Japanese stocks climbed to 27 percent overweight, according to this month’s survey. That’s up from 17 percent last month and the second highest reading since 2006. Overall allocations to equities increased to 52 percent overweight, up from 48 percent last month.
“Investors are still looking at Japan,” John Bilton, European investment strategist at Merrill Lynch, said at a press conference in London today. “There is faith of what Prime Minister Shinzo Abe is looking to do. We have seen more of the speculative positions come out of the market and have started to see some long-only money come back in.”
At the same time, concern about a so-called hard landing in China’s economy and a “collapse” in commodity prices has prompted global money managers to sell emerging-market stocks and increase their cash levels.
A net 18 percent of investors were underweight developing markets in the latest survey, for the lowest level since November 2001. That compares to 43 percent who were overweight the region five months ago. The average cash balance rose to 4.6 percent in July from 4.3 percent last month.
The global survey was conducted from July 5 to July 11.
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