Investors Most Bullish on Europe Since 2011, BofA Says

Sept. 18 (Bloomberg) -- Global investors are the most optimistic on euro-area equities in 18 months after the European Central Bank’s bond-buying program prompted money managers to reduce cash holdings, a Bank of America Corp. survey showed.

A net 1 percent of money managers, who together oversee $524 billion, had a so-called overweight allocation in European stocks in September, according to a report published today. That’s the first time they have owned more of the region’s shares than a represented in global benchmarks since April 2011.

“The ECB has done an amazing job in averting disaster and investors really don’t want to stand in the way of that,” John Bilton, European investment strategist at Bank of America’s Merrill Lynch unit, said at a press conference in London. For the first time since April 2011, Europe’s debt crisis is not investors’ biggest fear, with concern about impending fiscal tightening in the U.S. now at the forefront, he said.

The benchmark Stoxx Europe 600 Index has gained 12 percent this year, touching a 15-month high last week, amid expectations that central banks will introduce more stimulus measures to support economic growth. That compares to a 16 percent rally for the Standard & Poor’s 500 Index.

The Stoxx 600 surged the most in a month on Sept. 6 after ECB policy makers agreed to an unlimited asset-purchase program in bid to regain control of rising bond yields. Markets extended the rally after the Federal Reserve announced a third-round of quantitative easing on Sept. 13, the same day that Bank of America’s survey was completed.

Fed Action

The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month and hold the federal funds rate near zero “at least through mid-2015.”

Cash holdings fell to a six-month low in September with a net 13 percent of the 186 respondents in the survey now overweight the asset class. That’s down from 25 percent in August and 33 percent in July, the report showed.

Total allocation in equities climbed to a four-month high with a 15 percent now overweight stocks versus 12 percent in August. That’s still below the 10-year average of 25 percent, according to the report.

“European investors are starting to shift from a sell-the-rally mentality to a buy-the-dips mentality,” said Bilton. “But it would still take a substantial change in growth expectations to really bully investors to go all in now.”

Global growth expectations declined in September while inflation concerns rose to a 15-month high. Seventy percent of investors still expect a deflationary environment of below-trend growth, according to the report. Profit expectations also deteriorated with a net 28 percent expecting earnings growth to slow versus 21 percent last month.

Emerging markets remained investors’ most preferred region for equities, with 19 percent overweight. Money managers reduced holdings in U.S. stocks for a third straight month to 11 percent overweight. More than half of respondents now say the region is overvalued, according to the report.

The survey was conducted from Sept. 7 to Sept 13.

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