BofA Joins ABN Amro Buying European Stocks on ECB Support
(Corrects Merrill Lynch’s assets under management in third paragraph of story published on Sept. 19.)
Money managers at Bank of America Corp. (BAC) and ABN Amro Private Banking moved to a so-called overweight positions in euro-area equities for the first time in two years after unprecedented central-bank stimulus boosted confidence in the region.
The European division of Bank of America’s Merrill Lynch Global Wealth Management and ABN Amro Private Banking say they now hold more European stocks than are represented in global benchmarks for the first time since at least 2010.
“The balance of risk has seen to have shifted,” Bill O’Neill, who helps oversee about $1.8 trillion in assets as chief investment officer for Europe, Middle East and Africa at Merrill Lynch Wealth Management in London, said in a phone interview yesterday. “The European Central Bank and Federal Reserve have effectively taken out some of the tail risk. Come what may they are going to stimulate the economies.”
The Stoxx Europe 600 Index (SXXP) has gained 12 percent this year as ECB policy makers agreed on an unlimited asset-purchase program and the Fed announced a third-round of quantitative easing. The U.S. central bank 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.”
The ECB’s move prompted ABN Amro Private Banking to start buying equities on Sept. 10, Chief Investment Officer Didier Duret, who helps oversee about 155 billion euros ($203 billion) in assets, said on Sept. 17. Merrill Lynch held off until after the Fed announcement on Sept. 13., according to O’Neil. Merrill Lynch previously had an underweight position on European shares, while ABN Amro was neutral.
“There is a huge incentive to put money to work,” Duret said in a telephone interview from Geneva. “The market has to recognize that the institutional problems of Europe will be tackled. From an investment perspective, it is very important to start to look at the end game.”
Investors funneled $12.1 billion into all equity funds last week, the most in 15 months, according to data compiled by EPFR Global. Inflows into European stocks reached an 18-week high.
Global fund managers are the most bullish on euro-area equities in 18 months, according to Bank of America’s September survey. A net 1 percent of respondents, who together oversee $524 billion in client assets, said they were overweight Europe, the first time since April 2011. Cash levels also fell to six- month lows.
“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, Bank of America’s European investment strategist, said at a press conference in London yesterday. “European investors are starting to shift from a sell-the-rally mentality to a buy- the-dips mentality.”
Even so, global growth and profit expectations fell in September while inflation concerns rose to a 15-month high, the Bank of America survey showed. A net 15 percent of respondents were overweight equities globally, below the 10-year average of 25 percent.
“In terms of our overall investment strategy, at this stage we are not prepared to bet the house on a big equity- market move,” O’Neill said. “Policy will sufficiently propel a re-rating in European equities, but the difficulty is the earnings environment does limit the absolute upside.”
The Stoxx 600’s valuation has climbed to 12.2 times the estimated earnings of its member companies, near the highest since December 2010, according to data compiled by Bloomberg.
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