The number of investors saying equity markets are overvalued rose to a record high of 46 percent in August, Bank of America Merrill Lynch's monthly fund manager poll showed on Tuesday.
The survey, which polled 202 asset managers with $587 billion under management, was carried out between August 4-10 and showed cash levels at a stubbornly high 4.9 percent, whilst the allocation to equities fell to a net 36 percent overweight.
European investors' cash weighting rose to 5.3 percent, the highest reading since March 2003.
BAML noted an "ominous inflection point" in the profit expectations indicator, with only a net 33 percent of investors saying corporate profits would improve over the next 12 months. This was down 25 percentage points from January to the lowest level since November 2015.
The bank suggested this was a warning sign for equities over bonds, high yield over investment grade and cyclical sectors over defensive ones. "Further deterioration is likely to cause risk-off trades," said Michael Hartnett, chief investment strategist.
Expectations for faster global growth also fell to 35 percent in August, down from 62 percent in January, and the outlook for corporate operating margins stalled.
However, the percentage of investors expecting a 'Goldilocks' scenario of above-trend growth and below-trend inflation rose 6 percentage points to 42 percent, a record high.
This could be linked to the fact that U.S. inflation has remained subdued.
The U.S. consumer price index edged up just 0.1 percent last month after it was unchanged in June. The modest gain in consumer prices could worry Federal Reserve officials who have largely viewed the retreat in inflation as temporary.
In a new question, 43 percent of those surveyed thought low inflation was structural.
U.S. stocks remained out of favor, with the allocation falling to a net 22 percent underweight, the largest underweight since January 2008. The relative U.S. equity positioning versus the rest of the world was also the lowest since April 2007.
The tech-heavy Nasdaq Composite was picked as the "most crowded" trade for a fourth straight month, nominated by 31 percent of poll respondents.
In contrast, the allocation to euro zone equities rose to a net 56 percent overweight from a net 54 percent last months. Emerging markets also remained in favor.
"Cash and overvaluation fears aside, fund manager survey positioning remains broadly pro-risk, pro-cyclical," BAML said.
Some 22 percent of respondents said the biggest tail risk remained a policy mistake by the Fed or the European Central Bank. North Korea, which stepped up its threatening rhetoric this month, was cited by 19 percent.
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