BofA’s July European Fund Manager Survey: Doubtful on growth, hopeful on the market
Updated:
17 JUL, 2024
By Jose Luis Palmer from RankiaPro Europe
Bank of America has released its latest Fund Manager Survey, where 134 panellists with $262bn assets under management responded to the regional survey carried on by the Bank of America. The report shows that 62% of the surveyed investors see lower global inflation translating into lower rates, and 55% of respondents see 5% or over upside for European equities.
Key takeaways
- Investors expect global growth to soften, driven by the US, but not to be weak outright, with 68% calling for a soft landing.
- Fading inflation is the key macro theme, with a net 62% seeing lower global inflation, translating into lower rates.
- A majority of respondents see 5%+ upside for EU equities with a preference for quality, while sentiment on banks is cooling.
Investors turn more doubtful on the global growth outlook
A net 27% of investors expect softening global growth over the coming 12 months, the highest level since January, while in April a net 11% were expecting the global economy to strengthen. The increasing growth pessimism is centred on the US, where 78% of respondents expect a slowdown in response to tight monetary policy, compared to 38% and 30% projecting slowing growth in China and the Euro area, respectively. Yet, investors do not expect global growth to be weak outright, with a majority of 68% still seeing a soft landing as the most likely outcome for the global economy (up from 64% previously), while only 11% forecast a hard landing.
Fading inflation is seen as the key macro theme
A net 62% of respondents think global inflation is set to decline over the coming 12 months, while 70% see scope for lower inflation in Europe. In combination with expectations of weakening growth, this leads a near-record 87% to expect lower short-term interest rates. A plurality of 40% of respondents think fading inflation will be the main macro driver for markets in the months' ahead, while 25% think inflation will remain sticky and 18% think the situation is too complicated to have strong views on this front. The proportion of clients seeing high inflation as the biggest tail risk for markets has dropped from 41% in May to 22%, while 26% see geopolitical conflict as the key tail risk and 18% worry about a US recession.
Investors remain bullish on European equities
55% of respondents see 5%+ upside for European equities over the coming year on the back of declining rates in response to fading inflation as well as robust earnings, while only 13% see downside for the market. A plurality of 33% think reducing equity exposure too early is the biggest risk for their portfolios, followed by 25% who think the biggest risk is not having enough defensive hedges.
Long cyclicals and quality stocks, sceptical on value
A plurality of 40% sees scope for cyclical outperformance, while 23% expect cyclicals to underperform. Yet, among individual European sectors there has been a clear pro-defensive shift, with healthcare and utilities ranking among the top 3 consensus longs (together with tech), while the cyclicals autos, retail and media make up the bottom. 53% of investors expect high-quality stocks to outperform their low-quality peers. A plurality of 33% see scope for value stocks to underperform growth stocks, up from 17% in June. For banks, a key value sector, 53% project underperformance ahead in response to declining bond yields and widening credit spreads, while only 30% believe in further banks outperformance, down from 56% in May.
