According to the latest European Fund Manager Survey by Bank of America, investors are increasingly optimistic about European equities despite growing concerns over global economic growth.
The bank said its survey shows that while a net 27% of investors anticipate a slowdown in global growth over the next 12 months, the highest level of pessimism since January, a substantial 55% of respondents see more than 5% upside for European equities in the coming year.
The survey highlights that most investors expect a "soft landing" for the global economy, with 68% considering it the most likely outcome, up from 64% previously.
Only 11% forecast a hard landing. Expectations of declining interest rates driven by fading inflation and robust earnings bolster optimism about European equities.
"A near-record 87% expect lower short-term interest rates," the BofA note states, reflecting the sentiment that inflation pressures are easing.
Interestingly, the investment bank says a net 62% of respondents believe global inflation will decrease over the next year, with 70% expecting lower inflation, specifically in Europe. This view is shifting investor focus towards the potential for lower rates and their positive impact on equities.
As BofA notes, "55% of respondents see 5%+ upside for European equities over the coming year." Sector-wise, there is said to be a noticeable preference for defensive stocks.
Healthcare, utilities, and technology rank among the top three consensus long positions, whereas cyclicals such as autos, retail, and media are at the bottom.
Moreover, 53% of investors expect high-quality stocks to outperform their lower-quality peers, and 33% see value stocks underperforming growth stocks, a significant increase from 17% in June.
Despite the mixed macroeconomic outlook, BofA notes that European equities remain a favored asset class, with many investors concerned about reducing their equity exposure too early and missing potential gains.
As BofA summarizes, "A plurality of 33% think reducing equity exposure too early is the biggest risk for their portfolios."