Fearing Rate Hike, Global Investors Flee U.S. Stocks

Global investors, expecting a second-quarter rate hike by the U.S. Federal Reserve, have significantly reduced their U.S. equity allocations, according to Bank of America Merrill Lynch’s March fund manager survey.

The survey results, released Tuesday, indicated that 19% of global asset allocators were underweight U.S. equities — the biggest underweight since January 2008 and a wide swing from 6% overweight in February.

The proportion of investors saying U.S. equities were overvalued reached its highest level since May 2000, 23%.

An overall total of 207 panelists with $565 billion of assets under management participated in the global and regional surveys conducted in early March by BofA Merrill Lynch and the market research company TNS.

The survey found that allocations to Eurozone and Japanese equities had both increased, with investors indicating that the shift to Europe had only just begun.

Sixty-three percent of respondents said Europe was the region they most wanted to overweight in the coming 12 months — a record since the question was first asked 14 years ago, BofA Merrill Lynch said in a statement.

The reading had shot up from a net 18% preferring Europe in January.

According to the survey, the move out of U.S. equities was also set to continue. Thirty-five percent of respondents said they wanted to underweight the U.S. — the most bearish reading in nearly a decade.

The spread between Europe and the U.S. has soared to 98 net percentage points — also a record, BofA Merrill Lynch reported.

The March survey indicated that investors had begun to bring forward the date of the Fed’s first rate hike. The proportion of investors expecting the Fed to raise rates in the second quarter rose to 34%, from 28% in February, and the number expecting a rate rise in the third quarter fell.

Accordingly, a net 2% of the panel said the U.S. dollar was overvalued—the first overvalued reading since 2009.

“Investor consensus suggests that the strong dollar will act as positive rather than a negative for the global economy and markets,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in the statement.

Inflation, Rate Expectations Spike

Fifty-two percent of panelists expected high global consumer price inflation this month, up from 29% in February and 14% in January.