Managers cut Europe equities exposure as earnings disappoint

Fund managers have slashed exposure to European equities amidst signs of economic weakness in the region and earnings forecasts disappoint, according to the latest Bank of America Merrill Lynch survey.

The August survey of global fund managers found that overweight positions to eurozone equities stood at 13 per cent marking a 22 per cent drop from the previous month and the biggest month-on-month drop in the last three years.

This pull back also puts allocations to the asset class back in-line with its 10 year average.

A total 4 per cent of global investors now say they would underweight Europe over any other region, the survey adds. This compares to the net 10 per cent who said they would overweight the region only last month.

This drop in sentiment follows concerns over the outlook for earnings growth in the currency bloc coupled with “growing signs of softness in economic data” in both the core and peripheral Europe, according to BofA ML European equity strategist Manish Kabra.

Confidence in European profit forecasts has fallen by 24 per cent since July, a record one-month change in sentiment, with 30 per cent of global investors now stating that the twelve-month profit outlook is worse in Europe than in any other region.

BofA ML says this rapid shift in sentiment suggests that the “love affair with the eurozone is no more” with Kabra expecting ”further de-risking to come.”  

However confidence in economic recovery within the eurozone still emains in positive territory despite a pull back in the latest survey, it adds, with a net 47 per cent expecting economic growth to improve compared to 58 per cent in the July survey.

Global investors also showed signs of optimism around the outlook for inflation in the eurozone. A net 50 per cent of investors expect inflation to rise over the next twelve months, up from 42 per cent last month.