Fund managers cut European growth expectations on Covid concerns

The 17 August survey of 232 participants representing $702bn AUM showed 44% of participants expect the EU macro cycle to improve further, the least optimistic outlook for the bloc’s prospects since June 2020 and marking a substantial decline from the March 2021 peak of 94%.

BofA attributed the decline to coronavirus-related concerns, with 19% of investors citing the Delta variant as the biggest tail risk facing markets, up from 9% in May, closely behind inflation concerns (20%) and worries about a taper tantrum (22%).

Just over half (56%) of respondents expect the macro cycle to peak this year, up from 40% last month.

BofA agreed with the survey’s consensus, amid “little scope for a renewed growth acceleration, given the advanced stage of reopening and clear signs of a loss in US growth momentum”.

The survey also found that 51% of investors expect the European equity rally to last until next year, with a majority expecting further single-digit upside.

However, 40% now expect the rally to end in Q4, up from 20% last month, while less than 5% of respondents see downside for European equities by year-end.

A net 23% of investors are currently overweight cash, the highest share in a year.

Elsewhere, 70% of respondents believe the reflation trade has further to go, with a growing majority of 67% viewing European banks as attractive as a way of positioning for rising bond yields. Less than 20% regard banks as unattractive.

BofA remains overweight banks and insurance.

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