European Stocks Might Be Getting Too Frothy

That was a great moment to rush out and buy Japanese shares. After all, if everyone had already bailed, who was left to sell? April 2003 proved to be the month that Tokyo's 13-year bear market finally ended. The Nikkei touched a modern low of around 7,600.

Since then, it's skyrocketed to 17,500.

Such easy bets come along very rarely, and there's nothing like it in the latest Merrill survey, which came out on Wednesday.

But one thing does leap out: Near-record bullishness for European stocks. Merrill calls it "EU-phoria."

Record numbers of fund managers believe Europe has the best profit outlook over the next 12 months. And an astonishing net 56% of asset allocators say they already are overweight European equities in relation to their benchmarks.

The net figure, which has soared from just 35% two months ago, is found by deducting the bears from the bulls. In the details of the survey, you find that two-thirds of fund managers surveyed are either "moderately" or "aggressively" overweight European equities. Meanwhile, a measly 12% are underweight Europe.

How many true bears of Europe are out there? Just 1% are "aggressively" underweight, as opposed to the 11% who are just "moderately" underweight.

This is within the context of a fund management industry that is already bullish overall and loaded up to the gunwales with equities.