What Greek Crisis? Fund Managers Load up on European Equities

Predictions of a recovery within the European currency union have made the region a new favorite.

Despite knife-edge negotiations between Greece and the rest of the Eurozone economies, fund managers are at their most confident about Europe in six years, according to a survey completed last week.

The monthly Bank of America Merrill Lynch fund manager survey showed those responsible for allocating investor cash thought the region’s profit outlook was at its best since 2009.

“We will need to see a strong recovery very soon to keep the bulls happy.” —Manish Kabra, BoAMLA net 81% of regional specialists said the economy would strengthen in the next year. Against this background, a record net 51% made the region their top pick in equities over a one-year horizon, up from January’s net 18%. A net 55% are already overweight, the bank said.

The survey was conducted before yesterday’s collapse of talks between Greece and Germany regarding the terms of the former country’s bailout.

“The European Central Bank (ECB) has successfully vanquished global deflation fears and induced the return of reflation trades in February,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research.

The announcement by the ECB that it would begin quantitative easing to combat deflation in the region has buoyed investor sentiment, the survey revealed. Indeed, inflation expectations are picking up: A net 29% of fund managers expected global core CPI to be higher in a year’s time, up from a net 14% a month ago.

Continental neighbours outside the currency union were less favoured by managers. Sweden, Switzerland, and the UK have all been underweighted by survey participants.

However, this positivity towards Europe needs to be backed up by definite action, the bank warned.

“Sentiment has gotten ahead of the fundamentals on European equities,” said Manish Kabra, European equity and quantitative strategist. “It is as if there is not a single bear left. We will need to see a strong recovery very soon to keep the bulls happy.”

The economy to take the biggest hit by this shift in investor sentiment has been the US, which had seen improvement in recent months. Overweight positions on US equities have declined to a net 6%, down 18 points versus last month, the bank said.

Some 196 panellists with $559 billion of assets under management participated in the survey from February 6 to February 12, 2015.