BofA’s March European Fund Manager Survey reveals rising confidence: Springtime for bulls

Bank of America has released its latest Fund Manager Survey, 119 panellists with $256bn assets under management responded to the regional survey carried on by the Bank of America. The report shows that investors have increased their appetite for risk reaching its highest level since 2021.

Key takeaways

• 21% expect better European growth, the first positive read in 2 years; 62% see a global soft landing, 23% a no-landing.
• 64% expect further near-term gains for EU equities, with 88% projecting upside over 12 months (the highest since Jan 2022).
• 70% expect quality to outperform; tech now the biggest sector overweight, with autos & chemicals among key underweights.

Rising confidence in a European growth reacceleration

A net 21% of respondents expect a stronger economy in Europe over the coming twelve months, up from a net 11% that expected a further weakening last month. For the first time in almost two years, participants do not see a recession in Europe on the horizon. The share who thinks US growth will stay robust, helped by resilient consumption, stands at 58%, little changed from last month but up from 28% in January. 62% think a soft landing is the most likely outcome for the global economy, with 23% in the no-landing camp, up from 19% last month and 6% in December.

Investors expect Goldilocks but sticky inflation is a risk

A plurality of 39% expect falling inflation against the backdrop of robust growth to be the dominant macro theme over the coming months, up from 27% last month, with a net 57% expecting a decline in global inflation over the coming year. However, risks around the goldilocks scenario are seen as rising, with a plurality of 32% judging higher inflation as the biggest tail risk for markets, up from 21% in January.

More bullish on European equities after a sharp rally

Investors think European equities can continue to rise, with 64% of participants expecting further near term gains for the market (up sharply from 43% last month) and 88% projecting upside over the coming twelve months (up from 78% last month and the highest since January 2022). 45% of respondents think equity upside will be driven by earnings upgrades in response to US growth resilience and China easing, while 42% see a declining discount rate due to dovish central banks as the main catalyst. A net 21% see European equities as undervalued, up from 14% last month.

European tech in favour amid appetite for quality cyclicals

45% of investors expect further upside for European cyclicals relative to defensives in response to easing credit conditions and rebounding PMIs (unchanged from last month), while 70% expect high quality to outperform low quality (up from 57%). Tech is now the biggest sector overweight in Europe, overtaking insurance, while the cyclical sectors chemicals, retail and autos remain the least favourite sectors. 40% of survey participants think AI stocks are in a bubble, while 45% believe they are not. Reducing equity exposure by too much and thus missing out on a continued rally is seen as the main portfolio risk for a plurality of 33%.