Europe 'riding coat tails' of stimulus expectations in US
GLOBAL - The prospect of additional quantitative easing (QE) in the US has "breathed life" into the European macroeconomic outlook, according to the BofA Merrill Lynch Survey of Fund Managers for October.
One-fifth of asset managers surveyed said they now expected the European economy to strengthen over the next 12 months, a sharp increase on the 7% reported last month.
Respondents' expectations for profits improved even more sharply, with 28% predicting stronger earnings per share (EPS) growth, compared with 13% expecting weakening EPS growth last month.
Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research, said: "European stocks, especially in cyclical sectors, are riding on the coat tails of QE expectations, with as yet no sign of a pick-up in underlying macro fundamentals."
The survey also found that currency uncertainty had led global asset allocators to "neutralise" their regional preferences between Europe and the US, with 3% overweight the euro-zone, down from 4% the month previous.
A net 1% of respondents said they were underweight the UK, while 4% said they were underweight the US.
European asset managers' cash weights plummeted over the period, with 2% now underweight - last month, 22% reported being overweight.
Further, an increasing number of respondents saw the euro as being overvalued, from just 17% last month to 45% this month.
However, only 7% said the euro - in light of imminent QE in the US - was likely to depreciate more than other currencies over the next year, as opposed to the 12% who opted for the US dollar.