Shift to Eurozone stocks from US equities fifth-largest since 1999: BofA-ML survey

The fancy for Europe stocks comes despite next week’s potentially disruptive French election, with a large number of investors finding US equities overvalued


The allocation to Eurozone equities is now at a 15-month high with a net 48% of survey respondents overweight, while the allocation to US equities has plunged to the lowest levels since January 2008, to net 20% underweight. Photo: Reuters
The allocation to Eurozone equities is now at a 15-month high with a net 48% of survey respondents overweight, while the allocation to US equities has plunged to the lowest levels since January 2008, to net 20% underweight. Photo: Reuters

Mumbai: Global stock market investors are turning attention from the US to the Eurozone, in the fifth-biggest such shift since 1999, a survey of fund managers showed on Wednesday. The fancy for Europe comes despite next week’s potentially disruptive French election, with a large number of investors finding US stocks overvalued.

Bank of America Merrill Lynch’s (BofA-ML) April Global Fund Manager Survey (FMS) was conducted during 6-12 April among 203 panelists with total assets under management (AUMs) $593 billion.

Within Europe, the UK remains the least preferred region and the relative positioning versus Eurozone equities is close to an all-time low.

Of these, 172 participants with $498 billion AUM responded to the Global FMS questions and 96 participants, with $235 billion AUM responded to the regional fund manager questions.

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The allocation to Eurozone equities is now at a 15-month high with a net 48% of survey respondents overweight, while the allocation to US equities has plunged to the lowest levels since January 2008, to net 20% underweight.

“Investors are showing love for Europe and scrambling out of US equities, as the majority find US stocks overvalued and perceive a risk of delayed US tax reform,” said Michael Hartnett, chief investment strategist, at BofA-ML.

A record number of investors, at net 83%, find US stocks to be overvalued, while 32% say global equities are overvalued, near 17-year highs. Also, a net 21% of fund managers think the US dollar is overvalued, down from net 32% last month, but long US dollar is still perceived as the most crowded trade.

“In spite of the French presidential election starting in less than a week, investors’ perception of Europe is increasingly bullish. Although we agree on the allure of Europe’s earnings recovery, complacency looks extremely high,” said Ronan Carr, European equity strategist.

Also, around net 44% of investors are overweight emerging market (EM) equities, up from net 18% underweight in March and this allocation is the highest in five years. Investors believe EM equities and the euro remain undervalued.

Meanwhile, the cash levels according to FMS rose to 4.9% from 4.8% in March, remaining above the 10-year average of 4.5%.

The disintegration of the European Union (EU) was cited as the biggest tail risk, though this fear has dropped sharply in the past two months. The other risks are a delay in US corporate tax reform and a trade war.

Japan equity allocation saw its first observable decline since the US election, but investors are still overweigh.

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