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BofA’s May European Fund Manager Survey: All aboard the Europe train
Macro

BofA’s May European Fund Manager Survey: All aboard the Europe train

Bullish on European macro cycle & European equities, optimism on global economy, cyclicals & small caps… do not miss the findings of the latest Fund Manager Survey released by the Bank of America
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Updated:

14 MAY, 2024

By Jose Luis Palmer from RankiaPro Europe

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Research by: Andreas Bruckner & Sebastian Raedler, Investment Strategists MLI UK

Bank of America has released its latest Fund Manager Survey, where 134 panellists with $301bn assets under management responded to the regional survey carried on by the Bank of America. The report shows that 61% of the investors expect stronger European growth ahead, reaching its highest level since July 2021.

Key takeaways

  • A net 61% expect stronger European growth ahead, the highest since July 2021, while a net 9% project global growth to slow.
  • 78% see further near-term gains for EU equities, up from 52%; a net 34% think they are undervalued, the highest since January 2019.
  • 63% expect upside for EU cyclicals vs defensives (highest since January 2022), 34% for small vs large caps (highest since September 2021)

Getting more bullish on the European macro cycle

A net 61% of respondents expect stronger European growth over the coming twelve months, up from 50% last month and the highest since July 2021. Only 22% of investors see growth slowing in the near term in response to the lagged impact of monetary tightening, down from 83% at the start of the year, while 34% expect an immediate acceleration on fading inflation and easing credit conditions, up from 3% in January. A net 76% expect European inflation to decline over the coming year, while a net 56% project lower inflation globally.

Optimism on the global economy is more subdued

A net 9% project global growth to slow in the next twelve months, compared to a net 11% that thought global growth would accelerate last month. 41% of investors see inflation as the biggest tail risk globally (ahead of geopolitics, at 18%), with 49% regarding global fiscal policy as too expansive, the highest on record (with data going back to 2008), while a net 5% think this is the case in Europe. 58% of respondents expect US growth to remain robust near term, helped by a resilient consumer, followed by a slow-down towards year end as the lagged impact of Fed tightening starts to bite (up from 50% last month). 56% think a soft landing is the most likely outcome for the global economy, with 31% expecting no landing and 11% a hard landing. 

Investors see more upside for European equities

78% of participants expect further near-term gains for European equities (up from 52% last month) and 83% project upside over the coming twelve months (up from 79%), with 49% looking for further gains of 5-10% (up from 31% last month). 51% think European market upside will be driven by a declining discount rate, as fading inflation leads the ECB to ease policy, while 37% count on earnings upgrades in response to macro resilience. A net 34% see European equities as undervalued, up from 12% last month and the highest since January 2019. 44% see the productivity boost from AI as fairly priced in the equity market, while 19% think only little of the good news is already in the price and 17% believe that the AI rally has gone too far.

Cyclicals and small caps are in favour, with tech on top

63% expect further upside for European cyclicals relative to defensives on easing credit conditions and rebounding PMIs, up from 45% last month and the highest since January 2022, while 34% expect European small cap stocks to outperform large caps, up from 7% last month and the highest since September 2021. Tech retakes its place as the biggest sector overweight in Europe, replacing energy, which sees a marked cutback in positioning. Healthcare and insurance round out the Top-3 European sector positions. Real estate is the least favourite sector, followed by chemicals and media.

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