Investors Rally Around Europe After ECB's Monetary Promise - Fund Manager Survey

Amisha Mehta Reporter London 18 February 2015

Investors Rally Around Europe After ECB's Monetary Promise - Fund Manager Survey

Investors moving to the overweight camp on European equities climbed this month after the European Central Bank announced plans for quantitative easing, according to Bank of America Merrill Lynch's monthly fund manager survey.

Investors overweighting European equities shot up from 20 per cent in January to 55 per cent this month after the European Central Bank eased deflationary fears with the promise of quantitative easing, according to Bank of America Merrill Lynch's monthly fund manager survey.

European equity allocations soared to the highest level since May 2007, something that would suggest the risks shrouding Greece and Ukraine have been sidelined. However, while fieldwork for the survey was carried out from 6 to 12 February, after the ECB announced it would inject billions of fresh money into the eurozone, the outcome coincides with the breakdown in negotiations between Greece and EU finance ministers over the country's debt burden.

With rising allocations, the survey found improved sentiment towards eurozone stocks, with a net 81 per cent of European specialists predicting stronger economic growth in the next year, up from 49 per cent last month. Highlighting the higher expectations for Europe was the net 77 per cent who foresaw higher profits in the region, compared to January's 40 per cent.

Indeed, overall volatility expectations shifted from stocks to bonds, which 79 per cent of investors deemed overvalued as an asset class.

Germany remained the European favourite, with 61 per cent of respondents looking to overweight the country. A net 42 per cent said they would underweight Switzerland, compared to just 11 per cent the previous month  - a perhaps unsurprising disposition in light of recent currency volatility and the tax scandal surrounding HSBC's Swiss private bank. 

Investors were equally negative on UK stocks, with 42 per cent of respondents saying they would underweight the country on a 12-month horizon, up from 17 per cent in January.

Outside of Europe, little changed this month in terms of growth and profit expectations. Investors estimated further sluggish growth for China, with a net 58 per cent of respondents expecting the economy to weaken over the next 12 months. Meanwhile, India continued to lead the way as the preferred country for both global emerging market and Asia-Pacific investors.

Sentiment towards the US waned as the intention to overweight the eurozone overtook. Underlining the less positive US outlook was the 18 point fall from January in overweights on US equities to a net 6 per cent.

As for notable sector shifts, global investors retreated from last month's pessimistic view on oil and increased their weightings to energy, as well as consumer discretionary, which reached a record high. Commodities, however, remained among the least congested cyclical sectors, alongside banks, which saw the sharpest month-on-month decline in sentiment of 32 percentage points.

“The ECB has successfully vanquished global deflation fears,” said the chief investment strategist at BofA Merrill Lynch Research, Michael Hartnett, in a statement. “Sentiment has gotten ahead of the fundamentals on European equities.”

“We will need to see a strong recovery very soon to keep the bulls happy,” added Manish Kabra, a European equity and quantitative strategist.

A total of 196 panellists with $559 billion of assets under management participated in the survey.

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