The euro is believed to be at its cheapest since April 2003

The euro is at its cheapest since April 2003 following the European Central Bank’s various monetary easing measures, according to a survey of fund managers by Bank of America Merrill Lynch.

The investment bank’s analysts note that in December last year the yen was seen as most undervalued since 2008, and since then the Japanese currency has rallied by 7% versus the US dollar.

The survey also showed that cash positioning among investors triggered a contrarian “buy” signal for equities. Fund managers’ cash allocation was at 5.1% in March, down from February’s 5.6% but still above the three-year average of 4.8%.

Cash allocation is still high, although it has fallen slightly. Source: Bank of America Merrill Lynch

Cash allocation is still high, although it has fallen slightly. Source: Bank of America Merrill Lynch

Bank of America Merrill Lynch’s rule says that whenever the cash allocation raises above 4.5% it triggers a contrarian “buy” signal, and when it falls below 3.5%, it triggers a contrarian “sell” signal.

As the chart shows, last month the allocation was higher than even during the Lehman crisis — in fact, it hit the highest level since November 2001.

The most crowded trades are short emerging markets, long US dollar and short oil. Contrarians should short real estate, discretionary, technology and the eurozone, and go long energy, materials, the euro, emerging markets and UK stocks, data from the survey show.

There was a big change in expectations regarding global growth, which have returned to three-month highs.

A net 11% of investors expect a stronger economy for the next 12 months, versus a net 16% of investors who expected a weaker economy just one month ago.

The biggest risks according to the investors polled are, in order of importance: quantitative failure, a US recession, devaluation of the Chinese currency and a big default in the emerging markets or among companies in the energy sector.

The survey was carried out between March 4 and March 10; 169 participants with $496 billion in assets under management responded to the questions.