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Investing.com -- Investor enthusiasm for European equities has eased in the short term, according to Bank of America’s August European Fund Manager Survey (FMS), while the longer-term optimism remains.
A net 15% of investors expect European equities to rise in the coming months, down from 37% in July, while the share seeing near-term downside has more than doubled to 31%. Half of respondents believe “very little of the tariff shock is priced in,” compared with 44% last month.
But despite the softer short-term sentiment, 88% anticipate upside over the next 12 months, up from 81% last month, with none expecting declines.
Positioning trends confirm this shift. A net 25% of survey participants are overweight European equities relative to their benchmarks, down from a peak of 41% in July. The move out of U.S. equities has also reversed, with a net 16% underweight versus 38% in May.
More than half — 54% — think Europe’s structural underperformance will persist due to political headwinds and weaker earnings growth, up sharply from 26% last month.
Sector allocations continue to favor financials, with banks and insurance the largest consensus overweights, and autos and retail the most underweighted. A plurality of 31% expect financials to be the best-performing sector over the next year, followed by technology at 19%.
On the style front, doubts about cyclicals are rising, with a net 1% now expecting them to underperform defensives, compared with a net 37% seeing outperformance last month.
Meanwhile, macro expectations for the region have moderated. A net 35% foresee stronger European growth in the year ahead, down from 44%, though that still far exceeds the global growth outlook.
German fiscal stimulus is the most cited catalyst for acceleration at 69%, followed by ECB easing at 12%.
The survey, conducted Aug. 1-7, covered 99 participants managing $183 billion in assets.