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Aug 16, 2010

Global fund managers warm to European equities

Allocators move into Eurozone stocks, especially UK shares

Fund managers embraced European stocks during August at the expense of US and Japanese equities, according to the latest fund manager survey by Bank of America Merrill Lynch (BofAML).

The shift marks a turning point for European stocks: for much of this year they have been shunned by global investors. In the survey results, a net 11 percent of global asset allocators say they are overweight Eurozone equities. This is the first overweight reading for Eurozone stocks since November 2009. What’s more, only three months ago, survey respondents said they were 34 percent underweight Eurozone shares.

UK companies perform particularly well in the August survey. Investors say they are only 2 percent underweight UK equities, up from 13 percent underweight last month. By contrast, US and Japanese companies saw asset allocators cut their positions, as appetitive for these two markets fell, finds the survey.

‘Investor sentiment on Europe has staged a remarkable recovery in the past few months, underpinned by greater optimism about Europe’s banks,’ says Gary Baker, head of European equities strategy at BofAML, in a statement. ‘Economic data now have to continue to support this shift.’

European equities are proving popular because they are perceived as being undervalued, reports the survey: a quarter of global asset allocators say Europe is the cheapest market in the world.

As the mood in Europe changes, fund managers are shifting out of defensive stocks and into financial and cyclical shares, notes the survey. It finds respondents cut underweights in banking and real estate stocks while moving out of healthcare and industrial companies during August.

In total, 187 fund managers with $513 bn in assets under management took part in the global survey.