Allocations to European stocks fell to an 18-month low in early June – and the intention to own them fell even faster.
A net 20% of global investors were overweight in Eurozone equities compared to 33% a month before, according to a Bank of America/Merrill Lynch (BofAML) survey of fund managers.
BofAML analysts said that the 20% reading was an 18-month low but near the long-term average. However, more important was the finding that a net 7% of the fund managers surveyed intended to go underweight over the coming year.
The direction of travel was towards US equities. For fund managers globally, the allocation to US equities had climbed 16 percentage points to a net 1% overweight, the first time investors surveyed had gone overweight in 15 months.
Michael Hartnett, chief investment strategist at BofAML, said: “Investors have their eyes on the US this month, with a record high favorable outlook for profits and a return to US equity allocation. Decoupling is back in vogue.”
Specifically among European fund managers, the survey found that a net 29% preferred to overweight Germany on a 12-month horizon, while Italy replaced the UK as the least favoured market in Europe.
Allocations to the UK equities by fund managers globally increased. Though fund managers were 21% underweight in UK stocks, this was the highest reading in over a year.
More European fund managers expected the European economy to worsen over the next 12 months. The reading increased to 9% from -6% in May. A global macro improvement or a pick-up in capital expenditure were seen as the most important drivers for future Eurozone growth, according to the majority.
And 79% of European fund managers surveyed expected EU inflation to rise over the next 12 months, a slight increase from the 76% in the previous month.
BofAML’s June survey covered 235 participants with $684 billion (€581 billion) in assets under management globally.
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