LONDON/FRANKFURT: European equities are regaining momentum as fund managers adopt a more bullish stance, supported by easing inflation concerns, improved earnings expectations, and optimism over central bank policies.
The latest Bank of America European Fund Manager Survey reveals that investors are increasingly betting on a soft economic landing, with many expecting global monetary easing — especially from the US Federal Reserve — to counterbalance slowing growth in key economies.
Risks Shift But Sentiment Strengthens
Concerns about the weakening US labour market have risen, with 59% of European investors citing it as the top downside risk. However, overall growth sentiment remains firm. Only 44% of respondents now expect a US slowdown, the lowest level since February, while expectations of a reacceleration in US growth have hit a 17-month high.
The earlier narrative of “EU exceptionalism”, which gained traction after US trade tariffs under President Donald Trump, has moderated. European equities’ overweight position in global portfolios has dropped to 15%, down from a peak of 41% in July, amid worries over political instability and lacklustre earnings in some sectors.
Even so, absolute sentiment is improving: 37% of respondents see near-term upside (up from 15% last month), while 52% forecast mild gains in the coming months. Only 15% now expect downside, the lowest reading since February.
Earnings Drive Confidence
The optimism is underpinned by expectations of earnings upgrades. Around 70% of managers say stronger corporate earnings will fuel market gains, compared to just 26% who fear downgrades may trigger corrections.
Inflation & Stagflation Outlook
Fears of stagflation are also easing. The share of investors expecting stagflation dropped to 41%, from 58% last month. More fund managers now expect a benign decline in inflation rather than a prolonged squeeze, while recession fears continue to moderate.
Outlook
With inflation cooling, monetary easing anticipated, and earnings expected to rise, European equities are once again drawing investor interest. While risks remain, the latest survey suggests confidence in Europe’s markets is steadily rebounding.
