Global fund managers have slashed US equity allocations to the lowest level in almost a decade amid a concerted push towards eurozone and emerging market stocks.
According to the latest global fund manager survey from Bank of America Merrill Lynch (BAML), allocations to US equities plunged from a net 1 per cent overweight in March to a 20 per cent underweight in April, as valuation concerns grasped investors.
This represented the lowest allocation since January 2008 and comes after a period in which US equity indices reached a series of fresh highs, pushing the S&P 500's forward price-earnings ratio to the highest level in 15 years.
A net 83 per cent of managers described the US as the most overvalued region - the highest proportion in the survey's history.
Meanwhile expectations for president Donald Trump and his potential to quickly boost the US economy appeared to falter. The survey found that only 5 per cent of respondents expected tax reforms planned by Mr Trump to be passed before the summer recess. Respondents also seemed roughly split on whether such reform could arrive by the end of 2017.
The move away from US stocks was to the benefit of other regions. According to BAML, April saw a rotation from US to eurozone stocks, marking the fifth largest move of this type since 1999.
Investors appeared relatively sanguine on the geopolitical threats looming over the region. While respondents predicted that a Marine Le Pen French election victory could mean a 5 to 10 per cent drop in markets, fears of EU disintegration have dropped sharply in recent months.
Eurozone equity allocations rose to a 15-month high, moving from a net 27 per cent overweight in March to a net 48 per cent overweight in April.
Managers also made a decisive shift into emerging markets, allocations reaching a five-year high. Weightings jumped from net 18 per cent underweight in March to net 44 per cent overweight in April.
As with the drawback from US equities, a shift to emerging markets appeared to be motivated at least partly by valuations. A net 47 per cent of investors said emerging market equities remained undervalued. Similarly, a net 19 per cent considered European equities to be undervalued.
Emerging markets have been a strong play for investors so far this year, proving to be the best-performing equity region in the first quarter of 2017. However asset allocators have been unsure whether this performance will persuade skittish investors to deploy cash in the region.
When asked to identify the top tail risks facing investors, 23 per cent of respondents pointed to Europe's elections increasing the chances of a break-up of the EU. Other concerns centred on the US, with 21 per cent highlighting a possible delay in US corporate tax reforms and 17 per cent raising the prospect of a trade war.