European fund managers are bullish on the outlook
By Rob Griffin
13:15, 14 December 2021
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.
“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