EUROPE - Growing optimism about the health of European banks has boosted investor confidence in the region, according to the latest BofA Merrill Lynch fund manager survey.

Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research, said investor sentiment had staged "a remarkable recovery" in recent months.

"Economic data now has to continue to support this shift," he said.

Respondents by and large brushed off last month's fears of a double-dip, with 86% saying they did not expect a European recession over the coming year - up from just 60% last month.

The survey also showed a marked recovery in demand for euro-zone equities.

In August, a net 11% of investors were overweight euro-zone equities, compared with a net 10% underweight just a month earlier - the most positive reading since October 2009.

Investors were also more bullish on UK equities than they have been for more than three years.

The survey showed that allocators are now "virtually neutral" at a net 2% underweight on UK equities, down from 15% last month and the most positive reading since May 2007.

BofA Merrill Lynch said low valuations had been the key attraction.

Nearly half of European fund managers surveyed said European equities were undervalued, up from 45% in July and "just a smidgen" below June's six-year record-undervalued reading.

A quarter of global asset allocators now consider the euro-zone to be the cheapest region.

By comparison, the survey showed a sharp decrease in appetite for US and Japanese equities.

A net 14% of asset allocators were underweight the US, against a 7% overweight position in July, while a net 27% were underweight Japan, compared with a net 7% in June.
 

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