The majority of respondents to the latest Bank of America European Fund Manager Survey were ‘bullish’ on the prospects for equities over the coming year, despite short-term pessimism.
According to the financial giant’s regular sentiment indicator, more than three-quarters (78%) of those surveyed saw an upside for European equities – the highest level in two years. In contrast, more than half saw negativity in the near future, a figure BOA described as a “fading majority”.
“After the sharp rally since October, 51% expect near-term downside for the market – down from 56% last month,” said the report’s authors, Merrill Lynch International investment strategists Andreas Bruckner and Sebastian Raedler. “Only 54% see lower European earnings per share ahead in response to slowing growth and fading inflation – a marked decline from 75% last month.
“Meanwhile, 43% think equity upside will be driven by earnings upgrades in response to US growth resilience or China easing, while 41% see a declining discount rate due to dovish central banks as the main driver.”
Optimism for cyclicals
The pair also noted that investors were more positive on cyclicals and less negative on value, adding: “46% of investors expect further upside for European cyclicals relative to defensives thanks to easing credit conditions and rebounding PMIs – up sharply from 22% last month. A plurality of 35% expect further downside for European value versus growth stocks on dovish central banks – down from 50% last month. Insurance remains the biggest consensus sector overweight in Europe, ahead of tech and healthcare.”
However, they also said: “Despite building optimism for cyclicals overall, cyclical sectors nonetheless dominate the underweights – in particular chemicals, autos and basic resources.”
Globally, Bank of America said 65% of respondents saw a “soft landing” as the most-likely outcome for the global economy, but those in the “no landing” camp had more than doubled, from 7% to 19%.
