The European Central Bank’s pending stimulus measures for the eurozone economy are expected to see international investors lump on European stocks this year.
According to the latest international fund manager survey, from Bank of America/Merrill Lynch, investors still have a muted risk appetite, with lower oil prices and policy stimulus expectations sustaining both overall growth hopes and investor confidence.
“Amid expectations of ECB stimulus, consensus is convinced that Europe is the region to overweight in the coming year,” according to Manish Kabra, European equity and quantitative strategist at Bank of America.
“But, on an absolute basis European stocks will be vulnerable to headwinds from outside the region,” he added.
According to the latest edition of the survey, more than two-thirds of investors say equities will outperform other major asset classes during 2015, but a net 75% of them feel US equities are overvalued — the highest reading, in this regard, since 2001.
Also seen was a hint of rising appetite for oil and energy stocks.
According to Bank of America, investors are seeing value in this sector, “but it seems too soon for them to have made a move”.
A net 45% of respondents feel that oil is undervalued, which is the highest reading in six years. At the same time a net 30% feel that energy stocks are the most undervalued.
Another area of note, within the latest survey, is the further falling out of favour of emerging markets.
“With questions hanging over China’s economy, bearishness towards global emerging market equities has intensified. A net 13% of asset allocators are underweight the region, compared with a net 1% being overweight in December,” the report noted.
More than 40% of panellists feel China will show weaker growth in the coming year, while nearly 20% of investors say that emerging markets are the region they most want to ‘underweight’ their portfolio.
Regarding the prospects for the global economy, 51% said they expect it to improve this year; 9% less than felt the same way just last month. That feeling coincided with the IMF marginally lowering its own outlook for global economic growth for both this year and next.
“As deflation surfaces in the eurozone, expectations of stimulus from the ECB, are high. Furthermore, the third quarter is now the most likely timing for a rate hike by the US Federal Reserve, versus the second quarter a month ago,” the survey said.
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