Fund managers most overweight bank stocks ever: BAML

By Jamie McGeever

LONDON (Reuters) - Fund managers have built up their biggest overweight position ever on bank stocks following Donald Trump's surprise U.S. presidential election victory, a survey showed on Tuesday.

Bank of America Merrill Lynch's monthly fund manager survey for December also showed that global growth expectations rose to their highest in 19 months, and corporate profit expectations rose to the highest in six and a half years.

The monthly survey of 211 clients with $568 billion of assets under management was conducted between December 2 and 8, almost exactly a month after the U.S. election.

Fund managers continued to trim cash holdings. Over the last two months they have been slashed by a full percentage point, usually a sign of "peak greed" that the rally in riskier assets like stocks is about to end. But not this one, BAML said. At least not yet.

"Fund managers have pushed pause on a risk rally, with cash balances falling sharply over the past two months," Michael Hartnett, chief investment strategist at BAML, wrote.

"With expectations of growth, inflation and corporate profits at multi-year highs, Wall Street is sending a strong signal that it is bullish," he said.

Since Trump's victory, U.S. stocks have hit record peaks, tumbling bond prices have pushed up yields to multi-year highs, and the dollar reached a 14-year high even in the face of an OPEC-fueled surge in oil prices.

Bank stocks have been among the biggest gainers on expectations that Trump will loosen financial regulation. A record net 31 percent of poll respondents are now overweight bank stocks, up from 25 percent last month, BAML said.

Allocation to U.S. equities rose to a two-year high, and a 10-month high for Japanese shares. The month-on-month rise in investors' Japanese equity holdings was the biggest on record, BAML said.

Global inflation expectations technically slipped to the second highest in 12 years, but second only to the month before. And at 84 percent compared to 85 percent, the number of respondents expecting higher prices remained elevated.

The number of respondents expecting above-trends growth and inflation doubled to 12 percent, the highest in five years, the survey showed. Over a third of respondents cited the "long" dollar position as the most overcrowded trade in the world.

The biggest "tail" risks to world markets was concern of further European union disintegration or bank defaults (29 percent), followed by a stagflationary crash in the bond market (26 percent).

(Reporting by Jamie McGeever; Editing by Andrew Heavens)

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