By Thyagaraju Adinarayan

LONDON (Reuters) – A whopping 98% of investors surveyed by Bank of America believe markets are “overvalued” after world stocks bounced back from March lows at a record pace driven by government stimulus measures.

World stocks surged 38% from March’s multi-year lows, fuelled by trillions of dollars in stimulus and gradual lifting of coronavirus lockdowns.

The euphoria led to investor cash levels dropping to 4.7% in June from 5.7% last month, the biggest monthly drop since August 2009, BofA’s survey of 212 fund managers with $598 billion in assets under management showed.

The drawdown was also partly supported by easing worries about a longer economic hit — a net 46% of participants in the survey expected a prolonged recession versus 93% in April.

BofA, however, said the recent optimism in markets was “fragile” as investors still see a second wave of novel coronavirus infections as the “biggest tail risk”.

Indeed, stocks and oil briefly came under pressure on Monday after several districts of Beijing closed schools and ordered people to be tested after an unexpected rise in infections.

But those fears haven’t stopped investors from joining the rally. The survey showed hedge fund net equity exposure jumping to 52% from 34%, the highest since September 2018.

A recent rally in value stocks, firms whose fundamental worth is not reflected in their share price, was driven by investors “violently” covering tactical short positions, BofA said.

U.S. tech and growth stocks remained the “most crowded trade” for a second straight month.

(Reporting by Thyagaraju Adinarayan; editing by Emelia Sithole-Matarise)