Being long US dollar is the most overcrowded trade for August, while this month the pound is the most overvalued since November 2008, a survey of fund managers showed.
The survey showed that 45% of investors believe “long USD” is the most crowded trade in August, followed by “long US high-yield debt”, with 17% of responses.
Long US technology stocks and long European periphery debt were the next overcrowded trades.
A total of 202 panellists with $575 billion assets under management took part in the survey, which was carried out between August 7 and August 13 by Bank of America Merrill Lynch.
The survey also showed a record underweight in energy, with a net 30% of respondents underweight, an allocation that is 2.6 standard deviations below its long-term average.
The percentage of investors who say they are “aggressively underweight” commodities has also reached a record high, while the commodity underweight has hit a 20-month low, with a next 28% of fund managers underweight. The current allocation is 1.7 standard deviations below its long-term average.
Expectations regarding economic growth and profits fell to 10-month lows in the survey. Growth expectations are at 37%, down from a peak of 62% in March, but only 6% of those who responded expect a global recession.
If sterling is the most overvalued since November 2008 according to a net 28% of respondents, the yen is the most undervalued since October 2008, according to a net 13%.
The euro has seen its second “undervalued” reading in nine years, with a net 3% saying the single European currency is undervalued.
The percentage of investors who are underweight emerging markets has reached an all-time high of net 32%, higher than during the Chinese debt scare in March last year and higher even than after the Lehman Brothers collapse.
This is because, besides perceiving a recession in China as the biggest tail risk, investors also see poor earnings prospects from companies in emerging markets and dislike commodities.
They also expect macroeconomic headwinds and problems with debt in emerging markets to crop up amid a strengthening US dollar and potentially higher bond yields.
Around 71% of respondents believe that China’s economic growth will fall below 6% by 2018; one third think it will fall below 5%.
Two thirds of investors believe that Chinese A-shares – the ones listed on the mainland – are still in a bubble, despite a 25% decline since their June highs.
An emerging markets debt crisis is ranked as the second-biggest worry for investors, after a recession in China.
The risk that the Federal Reserve falls behind the curve in raising interest rates and sparks inflation was ranked as investors’ third-biggest fear.