According to Bank of America’s November fund-manager survey, global investors sharply ramped up equity and commodity exposure while reducing cash holdings to just 3.7%. This low cash level is seen by BofA as a contrarian “sell signal,” indicating that investors may be over-positioned and vulnerable to a shift in sentiment. The survey covered 172 managers overseeing $475 billion, reflecting a broad view of current market dynamics.

Despite growing optimism about global growth, 63% of those surveyed admitted equities are overvalued. Many cited the AI sector’s dominance and concentration risk, with 54% naming the “Magnificent Seven” tech stocks as the most crowded trade. That concentration raises the spectre of a sharp unwind if macro conditions deteriorate or tech sentiment cools.

Tail risk concerns are front and centre: 45% of respondents said an AI bubble was their biggest worry, especially given the scale of capital being invested into infrastructure and compute. Meanwhile, 59% pointed to private equity or private credit as the likeliest source of a systemic credit event — suggesting that risk is not just in public markets but also in more opaque private domains.

For companies, this survey serves as a warning. While capital markets remain broadly open, the flush of risk-taking could reverse quickly if central banks disappoint or if valuations deteriorate. Businesses relying on elevated equity valuations for funding may need to prepare for tighter liquidity conditions or a shift in investor sentiment.

In summary, while investors remain aggressive, their positioning — low cash, high risk exposure — could become a vulnerability. The “sell signal” from BofA isn’t just about caution: it’s a call to reassess risk in a market that may be leaning too far into narrative-driven growth.

Source: Reuters.