The World's Least-Loved Trade May Be Set for a Recovery
The World's Least-Loved Trade May Be Set for a Recovery
(Bloomberg) -- European equities are the most unpopular asset class among fund managers globally, though such extreme pessimism could bode well for the region’s stocks, strategists at Bank of America Merrill Lynch said.
Investors see the short on European shares as the world’s most crowded cross-asset trade, according to a monthly poll by BofA published Tuesday. Outflows from the region’s equity funds have been non-stop for a year now and the stocks are trading near half-a-century lows relative to global peers.
But it’s exactly this high level of uber-negativity that’s making the strategists led by Manish Kabra believe that the region may be about to surpass competitors.
“Given crowded shorts as per this survey and other extremes in flows, valuations and macro data, we may be entering one of these rare quarters” when European stocks outperform global peers, the strategists said.
The Stoxx Europe 600 has staged a powerful recovery of 17 percent since hitting December lows, beating the MSCI World gauge, amid dovish signals from global central banks and bets that the U.S. and China can bridge an amicable trade deal. At the same time, the conviction in the rally among investors remains low after last year’s abrupt sell-off and as Europe’s growth and political concerns persist.
About a third of the global fund managers surveyed have an unfavorable profit outlook for the European Union and their view of the quality of the region’s earnings has fallen to a 2014 low. However, dovish comments from the European Central Bank and the U.S. Federal Reserve have helped improve traders’ growth sentiment, with the March survey showing that perception of monetary policy risks has dropped to the lowest since 2014 while the share of European investors expecting weaker economic growth has also fallen.
Technology stocks saw the largest increase in positioning of all the European sectors, making them the most crowded sector trade, while healthcare dropped the most over the month, with banks and media shares as the most-shunned sectors.
The survey was conducted during the week through March 14 and its regional part included 119 participants with $261 billion in assets under management.
--With assistance from William Canny.
To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net
To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Paul Jarvis
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