Investors are more positive about the outlook for European shares than globally as growth expectations weaken, a Bank of America survey found.
After the strong macroeconomic rebound in the past year, 80% of fund managers surveyed expect an improving macro cycle in Europe over the next 12 months, down from a peak of 94% in March, BoA said. That still leaves Europe well ahead of the global outlook with only 47% of respondents expecting a further improvement in global growth – down from 57% a month ago.
No respondents expect downside for European equities by the end of 2021 and 82% expect a single-digit percentage improvement after a strong rally. Now 27% see the market peaking in the third quarter, up from 19% last month, but 49% do not expect the peak to occur till 2022.
A net 45% of global investors say they are overweight European shares – the highest since January 2018 – and 71% expect European cyclicals to continue outperforming defensive stocks. The survey found 31% of investors expecting cyclicals to outperform by double digits supported by strong growth and a renewed rise in bond yields.
Industrials have replaced technology as the biggest consensus overweight sector for the first time since December. Tech and construction materials have had the biggest drop while food and beverages and healthcare have improved strongly. Tech and real estate are viewed as the most overvalued sectors with banks the most undervalued.
Inflation concerns are cooling but it is still seen as the main concern by investors. A net 42% of investors expect higher inflation over the next 12 months, down from 89% last month and the lowest reading for almost a year.
On a global basis, fund managers are much less optimistic on growth, profits and yield curve steepening. Stock, commodity and sector positions show little unwind of reflation expectations but the relative position of junk v quality, small v large and value v growth dropped to its lowest since October.
