Overview
A recent Bank of America European Fund Manager Survey released Tuesday indicates a sharp improvement in investor sentiment toward European shares. A net 91% of European fund managers now expect upside for European equities over the coming 12 months, up from 71% in the prior month's survey. The survey-implied expected return for the region rose to 6.3% from 5.2%.
Near-term and allocation views
Sentiment has moved higher for the near term as well. A net 54% of European investors anticipate equity prices will rise over the next few months, a notable shift from a net 4% who were expecting declines in June. In terms of global allocation, investors have become marginally overweight Europe, with a net 2% reporting overweight positions versus a net 15% underweight a month earlier.
Despite the broader improvement, the U.K. remains an exception: a net 37% of respondents report underweight positions on the U.K., the highest level of underweighting since August 2020.
Macro regime expectations and growth drivers
Part of the improved outlook reflects a change in how investors view macro conditions. For the first time since October 2024, the dominant regime expectation is a "Goldilocks" scenario - robust growth together with fading inflation - cited by a net 37% of European investors as the expected environment over the next three months.
Growth expectations for Europe have strengthened considerably: 54% of respondents now expect a stronger European economy over the next 12 months, up from 11% last month. Fiscal expansion is the majority-cited reason for anticipated acceleration in growth, referenced by 57% of investors. In contrast, hopes that geopolitical de-escalation would drive growth have diminished to 17% from 54% previously.
Geopolitical and inflation-related concerns
Middle East instability is the leading geopolitical concern, cited by 43% of investors. Respondents view energy prices and inflation as a key bifurcated risk: declines in energy prices and inflation are seen as the largest upside risk to global growth, while increases are perceived as the main downside risk.
Among potential catalysts for a market correction, a hawkish central-bank response to an upside inflation surprise is identified by 31% of investors as the most likely trigger.
Earnings, sector preferences and risk appetite
On corporate fundamentals, volume growth is cited as the primary driver of earnings by 46% of respondents, while earnings upgrades remain the most frequently named catalyst for further equity gains, mentioned by 63% of investors. The survey shows investors expect 12-month forward European earnings per share to rise by 5.6% over the coming year, slightly below the 6.0% increase expected in the prior month.
Risk appetite has shifted in favor of cyclicals; a net 26% of investors forecast that European cyclicals will outperform defensives over the coming months, reversing from a net 21% who expected cyclicals to lag last month.
At the sector level, banks are now the largest consensus overweight at a net 49% - the highest reading since February 2022 - while autos remain the most widely underweighted sector at a net 46%. Country preferences are similarly polarized: Germany is the most preferred market and France is the most disliked.
Conclusion
The survey captures a pronounced swing toward optimism among European fund managers across horizon, allocation and sector views. While broad sentiment has strengthened and investors are positioned more favorably toward cyclicals and banks, notable pockets of caution remain, most prominently in the U.K. and autos.