Investing.com -- Bank of America (NYSE:BAC) released the key findings of its European Fund Manager Survey (FMS) on Tuesday, including rising hopes for a ‘no-landing’ scenario for the global economy.
The FMS, which canvassed opinions on various economic scenarios, highlighted that 38% of respondents now see a 'no landing'—neither a soft nor hard economic landing—as the most likely outcome over the next twelve months. This marks a significant increase from just 6% in September of the previous year.
In contrast, the belief in a soft economic landing has decreased from 79% to 50%, while expectations of a hard landing have dropped from 11% to 5%.
“The US remains the key source of strength, with just under 70% of investors expecting US growth to stay robust,” BofA strategists led by Andreas Bruckner said in a note on Tuesday.
Furthermore, almost 60% predict the policies of the Trump administration will have a net positive impact on global growth, with anticipated fiscal stimulus and deregulation outweighing potential negative effects from tariffs and immigration restrictions.
Despite a dip in optimism for China's growth acceleration, with only 21% of respondents expecting an increase compared to 36% in the previous month, there is a growing belief that German fiscal policy could serve as a catalyst for European growth, the survey shows.
A plurality of 35% of investors see German fiscal stimulus as the most likely driver for an acceleration in European economic activity.
“Meanwhile, China stimulus is deemed to be the biggest upside risk to global growth,” BofA added.
The survey also reveals growing concerns over inflation and interest rates due to the resilience of global growth.
A plurality of 44% of those surveyed anticipate a 'higher-for-longer' macroeconomic environment characterized by sustained growth and persistent inflation. This sentiment is reflected in the expectations for inflation, with only 7% predicting a global decline over the next year—the lowest percentage in two years.
Moreover, for the first time since October 2022, a net 7% expect an increase in 10-year bond yields.
41% of respondents see Federal Reserve rate hikes as the biggest tail risk for markets.
According to the results of the survey, investors have become slightly less optimistic about the near-term prospects for European equities, with a net 44% expecting gains, down from 56% last month.
Over a 12-month horizon, 56% still see upside potential, though this is a decrease from 69%. Central bank policy has emerged as a key concern, with 26% identifying hawkish central banks as the most likely trigger for a market correction, up from just 8% in December.
“In terms of upside risks, 50% think further equity increases will be driven by earnings upgrades, while a net 33% see European equities as undervalued,” strategists highlighted.
As for sector-specific investments, Financials have become more crowded, with insurance now the largest sector overweight in Europe. The sector is anticipated to perform well, although there is concern that banks may plateau following a strong rally. Cyclicals continue to be underweighted, with the auto sector remaining the least favored among investors.