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Fund managers rotate from US to eurozone stocks

Fund managers are buying eurozone equities and shunning Wall Street, as a major survey of global money managers this month revealed the fifth-biggest rotation from US to European stocks since the start of monetary union in 1999.

The survey of 203 fund managers by Bank of America Merrill Lynch showed a record number — a net 83 per cent — believe US stocks are overvalued and that allocations to US equities fell to their lowest level since January 2008.

A net 32 per cent of investors believe global equities are overvalued — close to 17-year highs, according to the survey.

US equities have pulled back from this year’s peaks given rising concerns that Donald Trump’s ambitious plans for corporate tax cuts will not be passed by Congress this year.

“Investors are showing love for Europe and scrambling out of US equities, as the majority find US stocks overvalued and perceive a risk of delayed US tax reform,” said Michael Hartnett, chief investment strategist at BofA.

The bank said only 5 per cent of investors surveyed expect Congress to pass tax reforms before its summer recess.

The survey revealed a more positive outlook on Europe from investors. Fears over political forces breaking up the single currency have faded ahead of polls showing a tight contest between the four leading candidates in the first round of the French presidential election on Sunday.

Ronan Carr, European equity strategist at BofA, said: “In spite of the French presidential election starting in less than a week, investors’ perception of Europe is increasingly bullish. Although we agree on the allure of Europe’s earnings recovery, complacency looks extremely high.”

Eurozone stocks have also become more appealing for money managers, as just under a third think the euro is undervalued. This is the highest proportion since 2002.

Of those surveyed, 23 per cent cited a euro disintegration as the single biggest tail-risk this month, falling from more than 30 per cent in March.

Ahead of the UK’s FTSE 100 erasing its gains for the year on Wednesday in sterling terms, the country remains the least preferred region for investors within Europe

The survey also highlighted that the allocation to emerging market equities has climbed to its highest level in five years.

A net 44 per cent of investors are overweight emerging market equities, the survey showed, up from net 18 per cent underweight in March, and nearly half of investors surveyed believe EM equities to be undervalued.

The data provided further evidence of an emerging market rally. In the first three months of 2017, sovereign bond sales from emerging market issuers totalled $69.6bn, a record amount for a single quarter.

BofA surveyed 203 fund managers with a total of $593bn in assets under management over the period from April 6 to April 12.

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