Tags: BofA | US | stocks | overvalued

Survey: US Stocks Are the Most Overvalued Investments in the World

Friday, 21 Sep 2012 08:03 AM

By Michael Kling

Many fund managers believe U.S. stocks are overvalued and future profits will fall, a combination that could lead to a stock market tumble, Bank of America Merrill Lynch's September Fund Manager Survey indicates.

Of the 253 fund managers surveyed, a net 58 percent say U.S. stocks are the most overvalued investments in the world, an increase from 51 percent in August, and a net 43 percent see the eurozone as the most undervalued.

That's the greatest divergence between European and American valuations in the survey's history, according to BofA Merrill Lynch.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

The fund managers are more pessimistic about future profits. Specifically, a net 28 percent think corporate profits will deteriorate over the next 12 months, an increase from a net 21 percent who thought that way in August.

In addition, a net 59 percent think corporations are underinvesting, up from 54 percent in August, and a net 41 percent believe businesses should increase capital spending, an increase from a net 33 percent in August.

Fund managers now believe the United States is now the focal point of global risk

The proportion of fund managers who see Europe as the greatest risk fell from 48 to 33 percent, while 35 percent now see the U.S. fiscal cliff as the biggest risk to global investors.

“Investors now view the U.S. fiscal cliff as a greater threat than the euro zone – and the upcoming election is putting these fears into sharper focus,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Fund managers are becoming more confident about investing in Europe, and pessimism within Europe is fading.

“We have seen a 25 percent rally in European stocks from the June low, but sentiment on Europe has only just turned positive. Any extension of the rally is likely to be led by sector rotation and buying of unloved, domestically exposed stocks,” said John Bilton, European investment strategist at BofA Merrill Lynch Global Research.

Unless Congress reaches an agreement, $600 billion of tax increases and spending cuts will go into effect in January. Many economists believe that would cause a recession.

Federal Reserve Chairman Ben Bernanke has warned that the Fed will not be able to save the economy.

"If the fiscal cliff isn't addressed, as I've said, I don't think our tools are strong enough to offset the effects of a major fiscal shock, so we'd have to think about what to do in that contingency," he said at a news conference last Thursday, according to Reuters. "It's really important for the fiscal policymakers to, you know, work together to try and find a solution for that."

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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