Investors overweight European stocks in anticipation of quantitative easing on the continent as central bank policy breaks with the US
Investor sentiment toward European stocks improved in September after the European Central Bank (ECB) cut its interest rates and indicated more monetary policy easing may come, according to the Bank of America Merrill Lynch (BofAML) Fund Manager Survey.
A net 18 percent of investors included in the survey are overweight European stocks in September, up from a net 13 percent in August, the survey shows. A net 11 percent of investors say Europe is the region they most want to overweight in September, compared with August, when a net 3 percent said it was the region they most wanted to underweight.
About 42 percent of the investors surveyed say they expect the ECB to start a program of quantitative easing by the end of the year, up from 32 percent in August. The percentage saying the bank will not start quantitative easing has dropped to 19 percent from 31 percent.
The outlook for Europe differs sharply this month from the outlook for the US. Almost half (48 percent) of investors predict the US Federal Reserve will raise interest rates in the first quarter of next year, compared with 38 percent who said the same last month.
‘This month’s survey highlights the end of US and European central bank consensus – and as the first Fed rate hike since 2006 draws closer, we’ll see a new US dollar bull market and movement out of bonds,’ says Michael Hartnett, chief investment strategist at BofAML Global Research, in a press release.
The UK, however, suffered a dip in investor favor with the approach of the Scottish referendum on independence. A net 20 percent of investors say the UK has the least favorable profit outlook, an increase from a net 12 percent in August. A net 16 percent of those surveyed are underweight UK equities.
