A record 44% of investors in the Bank of America Merrill Lynch’s June fund manager survey said equities were overvalued, up from net 37% in the May survey.

“Market vulnerability to profit weakness is very high, with investors’ perception of excess valuation coinciding with high global profit expectations,” Michael Hartnett, chief investment strategist at Merrill, said in a statement.

The survey was conducted in early June among 210 panelists with $596 billion in assets under management.

Fifty-seven percent of investors said internet stocks were expensive, and 18% saw them as bubble like.

For the second consecutive month, long Nasdaq topped the crowded trade list, mentioned by 38% of investors, up from 26% in May.

Nineteen percent of respondents said long Eurozone equities was the most crowded trade, and 14% said long U.S./EU corporate bonds.

In another new all-time high in the survey, 84% of respondents said the U.S. was the most overvalued region for equities.

At the same time, 48% of investors said emerging market equities were undervalued, and 18% said the same about European equities.

Allocation to U.S. equities rose to net 15% underweight from net 17% underweight in May, while Japan equity allocation plummeted 11 percentage points to net 1% overweight.

Allocation to Eurozone equities remained near two-year highs at net 58% overweight. “With the allocation to Eurozone equities still near historical highs the pause in performance may last a while longer,” Merrill’s European equity strategist Ronan Carr said in the statement.

Average cash balance increased to 5% in June, up from 4.9% in May and still above the 10-year average of 4.5%.

The survey’s cash rule says that when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities; when the cash balance falls below 3.5%, a contrarian sell signal is generated.

Merrill noted that macro momentum peaked in January. Since then, investors’ expectations for faster growth have dropped 23 points to net 39% in June.

Inflation expectations have also continued downward, with net 60% of fund managers calling for higher inflation, a drop from net 75% in April.

The Federal Reserve announced plans on June 14 to reduce its balance sheet, but one analyst questioned the Fed’s ability to do and raise rates while inflation is falling.

Forty-seven percent of investors in the June survey said global monetary policy was “too stimulative,” the highest number since April 2011.

Investors who thought the U.S. dollar was overvalued fell to net 7% from net 23% in May, the lowest level since the American elections in November.

Chinese credit tightening continued as the top tail risk for the second straight month, mentioned by 31% of respondents. As to the likely effects of tighter Chinese monetary policy:

  • Slow Chinese PMI, but with marginal effect on global growth: 61%
  • Little effect on Chinese or global PMIs: 15%
  • Cause a meaningful drop in China and global PMIs: 9%

Eighteen percent of survey respondents said a crash in global bond markets was the biggest tail risk, and 14% said a delay in U.S. corporate tax reforms.

Sweeping tax and regulatory reforms are unlikely to come from the Trump administration and Republican-controlled Congress, according to one finance executive.

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