Global investors are turning increasingly optimistic on stocks, but concerns about frothy valuations are rising fast. Bank of America’s October Global Fund Manager Survey revealed that 54% of respondents believe AI-related assets are in bubble territory, while a record 60% say global equities are now overvalued.
The survey showed equity allocations at their highest level in eight months, while bond exposure has sunk to its lowest point since late 2022. Cash levels have fallen to 3.8%, signaling a marked rise in risk appetite. Liquidity conditions are viewed as the strongest since September 2021.
Recession fears have faded sharply, with 54% of fund managers now expecting a soft landing. Optimism about global growth posted its biggest six-month surge since 2020, driving aggressive risk-on positioning. Commodities are at their most overweight since early 2023, and allocations to emerging-market equities are at their highest since 2021. Meanwhile, cash positions have been cut to their lowest level since late 2024.
Even with this bullish tilt, valuation worries loom large. “AI was cited as the top perceived tail risk, overtaking inflation and geopolitics,” the survey noted. “Long gold” emerged as the most crowded trade.
“A 2nd wave of inflation (27%), ‘Fed loses independence & US dollar debasement’ (14%), complete the podium of the biggest tail risks this month,” wrote BofA strategist Michael Hartnett. He added that trade war risk (5%) has “eased significantly since peaking in April,” when a record 80% of surveyed investors named it as the top tail risk.
Despite the cautionary signals, investors appear willing to accept higher risks in search of returns. Private credit was identified as the asset class most likely to trigger a systemic event, suggesting some unease beneath the bullish surface.
Still, positioning shows investors are not yet turning defensive. Contrarian signals flagged in the survey include going long bonds versus short stocks and rotating from banks into consumer staples.
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