Global investors still consider financial markets to be overvalued, according to this month's benchmark survey from Bank of America Merrill Lynch, but remain split on when valuations will peak next year and are quietly adding to cash balances in order to add to risk positions in the year ahead.

The net share of respondents in BAML's monthly poll of 172 investment managers -- who run more than half a trillion dollars worth of assets -- who say that equities are overvalued held at a record 45%, the bank said, while cash balances on their books rose for the first time in four months, taking the levels to 4.7% and past the 10-year average of 4.5%. Investors are still in broad agreement, however, that 2018 will see the so-called 'Goldilocks' scenario of above-trend growth and tame inflation that should continue to support global equity prices.

"Despite surging credit and equity markets, investors increased their cash balance back into buy territory," said Michael Hartnett, chief investment strategist. "This paves the way for more risk asset upside in the beginning of 2018."

A monetary policy error, either from the U.S. Federal Reserve or the European Central Bank remains the key concern for institutional investors, the survey indicated, with a net 23% citing such a worry over a crash in global bond markets (15%) and a serious debt crisis in China (14%). Around two-thirds of poll respondents think the current U.S. tax reform bill, which could add $1.5 trillion to the federal deficit over the next 10 years, will lift bond yields next year, but a similar amount say it will also boost equity valuations.

That said, "investors are split on expected timing of equity markets peaking in 2018," the survey noted: "25% see a peak in Q1, 30% in Q2, and 28% in the second half of the year."

Nearly a third of survey respondents said that "long bitcoin" was the market's most-crowded trade (32%), topping the 29% who worry that "long FAAANG+BAT" (market shorthand for owing Facebook Inc. (FB) Apple Inc. (AAPL) Amazon Inc. (AMZN) Netflix Inc. (NFLX) and Google parent Alphabet Inc (GOOGL) along with China-based tech stocks Baidu Inc. (BIDU) , Alibaba (BABA) and Tencent Holdings (TCEHY) ) is equally risky. 

This may explain why tech sector allocations fell to 24% overweight in December, the survey noted, dipping below the long-term average for the lowest "z-score" in three-and-a-half years. 

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