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European equity market sentiment surges
13 August 2013
Confidence among European fund managers in their home region at nine-year high, according to bullish fund manager survey. Alastair O'Dell reports
Confidence in Europe has surged among fund managers based in the region.
The proportion of fund managers that expect the region to strengthen in the year ahead has doubled to 88% since July, in the Bank of America Merrill Lynch (Baml) fund manager survey.
The level of confidence in the European economy is at a nine-year high and leads global expectations for the first time in three years.
John Bilton, European investment strategist, said: “The current earnings season shows global recovery reflected in European companies’ performance. With the eurozone the most undervalued major market by far, optimism on the region’s equities should be sustained.”
Respondents to the survey now view the most likely resolution to the crisis to be stronger growth, than intervention by the European Central Bank.
Fund managers' allocations to Europe are still lagging their optimistic predictions, indicating that stocks may be undervalued. EU equity allocation rose to their highest level in 5 years.
Indeed, a net 39% of respondents think that EU stocks are undervalued. They remain cheaper relative to US stocks than at any time since September 2012, by two standard deviations, according to Baml.
While investors are very confidence in the direction corporate profits – that it will increase – they are less confident in the absolute strength of profit growth. A net 55% of fund managers considered double-digit growth unlikely.
Global Investor/ISF recently looked at how allocations to European equity are starting to grow again.