Global fund managers dump European equities

Euro sign1Global fund managers have dumped European equities this month as the Eurozone has become the “epicentre of the current crisis”, the Bank of America Merrill Lynch Fund Manager Survey finds.

Europe’s sovereign and banking challenges have dominated the concerns of fund managers this month, with 68% of those surveyed saying they consider the Eurozone debt crisis as the largest of the risks.

Many of them have therefore sold European equities in September and a net 38% is now underweight European stocks, up from 15% last month.

This large underweight in European equities has led to an overall underweight in equities of 5%, the first time in two years. Global emerging markets saw some gains overall, with fund managers increasing their overweight from 27% to 30%.

Only US equities gained significantly as fund managers increased the 1% underweight they held last month to a 7% overweight.

“The survey shows that sentiment on Europe is now so negative that contagion risk to the rest of the world has risen significantly,” says Gary Baker, the head of European equities strategy at BofA Merrill Lynch global research. “It is not often that we see such an explicit comment on one region.”

On a sector level, fund managers have rotated out of banks into almost any other sector. Staples and utilities were the biggest gainers, followed by industrials and materials.

While conceding they have adopted the shortest investment time horizon ever, fund managers have gone heavily overweight cash and are incrementally less negative on bonds.

Analysts at the global research team say markets would rally on better than expected policy initiatives, but investors are struggling to see what these could comprise considering the unprecedented problems Europe is facing.

©2011 funds europe