European macro expectations remain “extremely optimistic”, according to the latest Bank of America Merrill Lynch’s European Fund Manager Survey.
Robust growth, inflation and profits keep European stocks as the number one region for global investor allocations, with only 1 in 10 managers underweight.
Sector allocations of European specialists shows optimism is still predicated on weaker euro: cyclical exporters like Autos and Industrials are most preferred, while allocations to domestic cyclicals like Banks show the 2nd straight month of declines.
“Inflation and growth the linchpins for macro optimism Near cycle-high expectations for eurozone inflation, growth, and profits have driven the large allocations into European stocks. Net 77% of European specialists expect stronger eurozone inflation, net 83% expect stronger economic growth, and net 77% expect strong profits over the next 12 months.
“FX still driving sector positioning Cyclical exporters are most preferred by European specialists: Autos and Industrials (net 26% and 20% overweight respectively) are most popular. In contrast, domestic cyclicals like Banks show neutral positioning.
“Commodity sectors remain shunned: Oil & Gas and Basic Resources are net 37% and 23% underweight respectively. Contrarians would OW Oil & Gas over Autos, and play ‘Recovery’ via long Banks,” the survey said.
Finally, BAML highlighted that the UK makes a comeback as election uncertainty resolved net 3% of European specialist fund managers intend to overweight the UK on a 12 month basis – a major increase from net 50% UW last month, when it was the least favored country. Similarly, the net % of global fund managers underweight the UK fell substantially, down to net 12% underweight from net 24% last month.