Global investor sentiment is becoming “toppy”, but overweight positions on equities are yet to reach extreme levels, according to a recent Bank of America survey.
Investor sentiment has reached its most bullish level since February 2025 following the biggest surge in profit optimism since July 2020 and a rapid increase in risk appetite over the past three months, Bank of America’s latest Global Fund Manager Survey has revealed.
Fund manager sentiment increased to 4.3 from 3.3 based on cash levels, equity allocation and global growth expectations.
The survey outlined that while sentiment was “getting toppy”, overweight equity allocations were not yet extreme and bond volumes remained low.
The BofA survey outlined that with “greed always much harder to reverse than fear”, investors are more likely to stick to hedging and rotation rather than retreat.
Fears about a global recession remain low, with 59 per cent of fund managers in the survey stating that a recession is unlikely.
This is the third consecutive month that recession expectations have fallen and are now at the lowest level since February.
Around two-thirds or 65 per cent now expect a soft landing outcome for the global economy, while only 9 per cent are forecasting a hard landing. This is a significant reduction from May when 26 per cent were still predicting a hard landing scenario. Around one in five expect no landing in the latest July survey.
Fund managers are also bullish on Europe with the net 20 per cent overweight exposure to the euro currency the highest it’s been since January 2005.
The increase in exposure to the euro over the past six months was the largest jump on record, rising from a net 18 per cent underweight position in January 2025.
Exposure to eurozone equities rose to a four-year high this month, with a net 41 per cent stating they are overweight, up from a net 34 per cent in June, and just 1 per cent in January.
Fund managers have also increased their exposure to technology stocks, increasing their allocation from a net 1 per cent underweight last month to a net 14 per cent overweight. This is the highest since January this year.
“In the past three months since April, global investors have raised their allocation to the tech sector by the largest amount since March 2009,” the survey said.
The survey revealed that most fund managers believe AI will be able to deliver productivity gains, with 42 per cent of the view that AI was already driving productivity gains. A further 21 per cent said it will provide productivity benefits in 2026, while 29 per cent said they expect productivity gains from AI after 2026.
Short positions on the US dollar is considered to be the most crowded trade according to 34 per cent of fund managers in the survey.
In relation to risk, fund managers still consider trade war to be the biggest tail risk.
“Trade war triggering a global recession is still viewed as the number one tail risk according to 38 per cent of investors,” the survey said.
Inflation preventing Fed rate cuts was the second biggest tail risk at 20 per cent, while 14 per cent considered the biggest tail risk to be the US dollar slumping on capital flight.
