Fund managers cut European growth expectations on Covid concerns

Less than half of fund managers expect the European economy to improve over the next 12 months, down sharply from 80% in the previous month, as concerns about the spread of coronavirus dampen optimism, the latest Bank of America (BofA) European fund manager survey shows. 

The 17 August survey of 232 participants representing $702bn AUM showed 44% of participants expect the EU macro cycle to improve further, the least optimistic outlook for the bloc's prospects since June 2020 and marking a substantial decline from the March 2021 peak of 94%.

BofA attributed the decline to coronavirus-related concerns, with 19% of investors citing the Delta variant as the biggest tail risk facing markets, up from 9% in May, closely behind inflation concerns (20%) and worries about a taper tantrum (22%).

Just over half (56%) of respondents expect the macro cycle to peak this year, up from 40% last month.

BofA agreed with the survey's consensus, amid "little scope for a renewed growth acceleration, given the advanced stage of reopening and clear signs of a loss in US growth momentum".

The survey also found that 51% of investors expect the European equity rally to last until next year, with a majority expecting further single-digit upside.

However, 40% now expect the rally to end in Q4, up from 20% last month, while less than 5% of respondents see downside for European equities by year-end.

A net 23% of investors are currently overweight cash, the highest share in a year.

Elsewhere, 70% of respondents believe the reflation trade has further to go, with a growing majority of 67% viewing European banks as attractive as a way of positioning for rising bond yields. Less than 20% regard banks as unattractive.

BofA remains overweight banks and insurance.