Fund Management

Demand For European Equities Surges, Boosted By ECB Stimulus Hope - BoA/Merrill Lynch Poll

Mark Shapland Reporter London 16 December 2014

Demand For European Equities Surges, Boosted By ECB Stimulus Hope - BoA/Merrill Lynch Poll

The prospects of more monetary easing by the European Central Bank has helped push eurozone equities up the popularity stakes, the latest Bank of America Merrill Lynch monthly survey of investors shows.

European equities are in fashion with global investors this month, the Bank of America Merrill Lynch Fund Manager Survey for December shows.

This increase in popularity comes despite the economic difficulties the region has found itself in over the past year. Eurozone equities were investors' darling in December, recording a net 26 per cent overweight - up significantly from November's 8 per cent figure. Meanwhile, a net 19 per cent regard eurozone equities as undervalued, up from November’s net 12 per cent taking such a view.

Regional fund managers have raised their exposure to European banks in particular. A net 13 per cent are now overweighting the sector, compared to last month’s net 3 per cent underweight. The enthusiasm around the eurozone is being driven by the fact the European Central Bank is firing up a quantitative easing programme for early next year.

“We are seeing capitulation out of energy and materials to the benefit of the dollar, cash, eurozone stocks and global tech and discretionary stocks,” said Michael Hartnett, chief investment strategist at BoA Merrill Lynch Research. “The prospect of ECB QE has brought growing consensus on European equities, but the weakening business cycle and falling commodity prices are working against true earnings recovery,” said Manish Kabra, European equity and quantitative strategist.

On the issue of oil - which has sunk in value this year, the poll showed that a net 36 per cent of fund managers view oil as undervalued following its recent price fall below $60 per barrel. This reading is up over 20 percentage points since October and represents its lowest level since 2009.

In contrast, investors have less conviction towards holding US and Japanese stocks. With the US market appearing overvalued to a strong majority of the panel, a net 10 per cent now intend to underweight it in the coming 12 months.

As a result asset allocators have hiked their cash holdings to an average 5 per cent. Moreover a net 28 per cent are now overweight cash relative to their benchmarks. This is the survey’s highest reading on this measure since June 2012.

The fund manager survey consists of 214 panelists with $604 billion of assets under management participated in the survey from 5 December to 11 December 2014.


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