Fund Manager Bullishness on European Equities Reaches New High, BofA Survey Finds

Optimism surrounding European equities has surged among institutional investors, with a net 91% of fund managers now expecting gains over the next 12 months, according to Bank of America’s European Fund Manager Survey for July. This represents a significant jump from 71% in the previous month and marks a new high in bullish sentiment.

A Shift to a 'Goldilocks' Outlook

The improved outlook is underpinned by a meaningful shift in the macroeconomic view. For the first time since October 2024, a "Goldilocks" scenario of robust growth and fading inflation has become the dominant expectation, cited by a net 37% of European investors. This coincides with a sharp rise in economic growth expectations, with 54% of respondents anticipating a stronger European economy, up from just 11% in June.

The survey also revealed that fiscal expansion has re-emerged as the most cited reason for expected economic acceleration, noted by 57% of investors. This has replaced hopes for geopolitical de-escalation, which fell as a contributing factor.

Portfolio Positioning and Key Risks

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This growing confidence is reflected in portfolio adjustments and a greater appetite for risk. Key findings from the survey include:

• Global Allocation: Global investors have turned marginally positive on Europe, with a net 2% reporting an overweight position, a reversal from a net 15% underweight last month.
• Cyclicals vs. Defensives: A net 26% of investors now project upside for European cyclical stocks versus defensives, compared with a net 21% who expected downside in June.
• Sector Bets: Banks are now the largest consensus sector overweight at a net 49%, the highest reading since February 2022. Autos remain the largest underweight at a net 46%.
• Country Preferences: Germany remains the most favored country market, while France is the most disliked.

Despite the bullishness, managers remain watchful of potential headwinds. A hawkish central bank response to an upside inflation surprise is seen as the most likely catalyst for a market correction, cited by 31% of investors. Middle East instability remains the primary geopolitical concern.