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European fund managers are bullish on the outlook

By Rob Griffin

13:15, 14 December 2021

Composite photo showing key landmarks of Europe
Survey reveals 28% expect European equity rally to last most of 2022 – Photo: Shutterstock

Fund managers are increasingly bullish about the outlook for both Europe’s economy and its stock markets, according to the latest Bank of America European fund manager survey.

It reveals 37% of respondents expect a stronger European economy over the next year, while 28% believe the current equity rally will last until at least the fourth quarter of 2022.

The study also showed inflation concerns were fading and an increasing number of investors see Covid as the biggest tail-risk since the emergence of the Omicron variant.

Central bank tightening looms

According to the survey, a net 30% of respondents expect lower inflation over the coming year, while there’s been a fall in the proportion of investors seeing it as the key downside risk.

“Despite the more sanguine inflation outlook, investors expect central banks to start tightening policy, with a net 59% of respondents regarding global monetary policy as too stimulative,” it stated.

In addition, 42% see central bank tightening as the biggest tail-risk for markets, making it the most frequently cited risk factor, overtaking inflation concerns.

Covid concerns return

Perhaps unsurprisingly, given the arrival of the Omicron variant in the week before the survey took place, Covid-19 concerns have made a return.

It found 15% of investors see Covid as the biggest tail-risk, up from a pandemic low of 3% in October, with 38% believing the pandemic is here to stay.

However, half of the respondents regard the virus threat as contained, due to the fact that hospitalisations and deaths are set to remain low.

Stable growth expectations

The study also highlighted an improvement in growth expectations, with 37% expecting a stronger European economy over the coming year.


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“Investor sentiment on China has also improved, with 45% of investors expecting policy easing in China to support a global growth rebound, up from 30% last month,” it stated.

“A vast majority of respondents, at 67%, believes that supply constraints have been a significant driver behind the recent global growth slowdown, but that they will unwind slowly, translating into only a small boost to growth going forward,” it added.

Bullish on equities

While 28% of respondents expect the European equity rally to last until the fourth quarter of 2022, 15% believe it will peak in the first quarter, and 10% believe it has already peaked.

A net 20% of investors regard the market as undervalued, which is the largest proportion since March 2019, while 42% believe reducing equity exposure too early is their biggest portfolio risk.

“That said, a growing share of 23% think the key risk is reducing equity exposure too late, up from 9% in November,” it added.

Outlook for cyclicals and financials

Finally, the survey found 43% of investors see a moderate further upside for cyclicals versus defensives, while 28% see an upside of at least 10%.

“Investors remain bullish on banks, with 78% seeing them either as an attractive vehicle to position for higher rates or as a beneficiary of the last leg of the recovery,” it stated.

Technology, insurance and banks remain the top three overweights, while telecoms, real estate and food and beverages are the top underweights.

Read more: Fund managers bullish over European stocks, says BofA

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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