European managers continue to remain "downbeat on growth" but do not expect a 'hard landing', a Bank of America European Fund Manager survey has found.

Four out of five (81%) of the 262 managers polled in July predicted a further economic slowdown in Europe, up from 70% last month, while less than 10% expected growth momentum to improve across the continent, reports Investment Week.

Sentiment has also soured on the US, with 55% now foreseeing monetary policy-induced growth weakness in the US, up from 45% last month. However, 42% still believe US growth will remain resilient near-term, thought still expect it to slow long-term.

China has also seen a sharp decline in manager outlooks, with 45% now expecting Chinese growth to continue softening, up from 18% last month.

Globally, 60% of managers expected growth to slow over the next year, but only 21% foresee a 'hard landing' as the most likely outcome.

Managers were also more positive on inflation, with 78% expecting global inflation to decline over the next year, and a record net 95% expecting European inflation to fall.

Nevertheless, 45% still viewed high inflation and hawkish central banks as the biggest tail-risk for markets.

A net 21% of managers also saw scope for lower bond yields, the highest number for 20 years.

Equities

Outlook for equities improved somewhat, with 66% of managers now forecasting downside for the European market over the coming months, down from 73% last month, while 55% now expect upside over the next year, up from 52% in June.

However, 82% of managers still see downside for European earnings per share, with 42% viewing earnings downgrades as the most likely cause of a market correction.

In response, having too little in the way of defensive hedges was viewed as the key portfolio construction risk for many (37%) investors.

By sector, banks have come back strong, retaking the top spot in investor positioning for the first time since February, before the US regional banking turmoil and buyout of Credit Suisse.

Pharma and insurance were the next most popular sectors, while real estate, autos and chemicals remained least popular.

A third of those surveyed (32%) saw downsides for cyclicals over defensives in Europe, down from 48% last month and the lowest number since June 2022, while those expecting quality to outperform rose to 68% from 59% last month. However, the share thinking value will underperform growth rose from 7% to 24%.

 

This article was first published on sister website Investment Week.