European Stock Holdings Rise to Five-Year High, BofA Says

European equity holdings rose to the highest level in five years as optimism that the region’s economy is recovering surged, a Bank of America Corp. survey of investors showed.

A net 17 percent of money managers, who together oversee $516 billion, are now overweight euro-area equities, meaning they hold more of the region’s shares than are represented in global benchmarks, according to the survey. That’s the highest since January 2008. Allocation to stocks in emerging markets fell to the lowest level since 2001.

Investors were the most optimistic on Europe’s economy in nine years. A report tomorrow may show the euro area returned to growth in the second quarter, after six straight contractions. Gross domestic product in the 17-nation region expanded 0.2 percent in the three months through June, economists forecast in a Bloomberg survey.

“We’re seeing Europe lead global sentiment for the first time in about three years,” John Bilton, European investment strategist at Bank of America’s Merrill Lynch unit, said at a press conference in London today. “Investors who have avoided Europe for a long time are beginning to come back and say, ‘I’d like to own Europe, but I don’t just want the global proxy that’s domiciled in Europe, I actually want to own Europe.’ That’s a big shift.”

European stocks rose for a fourth day today as German investor confidence climbed more than forecast. The Stoxx Europe 600 Index added 0.4 percent to 307.16 at 1:15 p.m. in London, extending this year’s rally to 9.8 percent. That still trails the 14 percent surge for the MSCI World Index of developed-market shares and 18 percent gain in the Standard & Poor’s 500 Index in 2013, according to data compiled by Bloomberg.

Sector Holdings

European fund managers increased their holdings of financial firms and companies most reliant on domestic growth. Banks, telecommunications, industrial and insurance companies were among the most owned stocks, according to a separate survey of 112 investors in the region.

Investors moved to an overweight position in U.K. stocks for the first time since 2003 and also became more bullish on U.S. equities, the global survey showed. They trimmed holdings in emerging markets to 19 percent underweight, the lowest since November 2001 and cut Japanese allocations to 19 percent overweight from 27 percent overweight in July.

The survey of 180 global fund managers took place from Aug. 2 to Aug. 8.

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