Money managers around the world are picking continental European stocks over other markets and are l...
Money managers around the world are picking continental European stocks over other markets and are least optimistic about the prospects for US stocks, according to a survey by Merrill Lynch & Co.
The Dow Jones Euro Stoxx 50 index, which excludes British stocks, has gained 1.4% this year in US dollar terms while Britain's FTSE 100 Index has declined 14.2% and the US Standard & Poor's 500 Index has fallen 5.7%.
"Fund managers are small sellers of US equities and continental Europe is the favorite market," said Trevor Greetham, an investment strategist at Merrill who compiled the monthly survey.
Investors started 'over-weighting' the European market at the expense of US and UK stocks in the spring of 1999, a trend that shows no sign of abating, Greetham said.
Fund managers won't sell European stocks until their optimism about the region's economies declines, he said. There are 25% more buyers of European stocks than there are sellers, according to Merrill's survey of 242 fund-management firms that oversee a combined $9 trillion. By contrast, there are 9% more sellers of US stocks than there are buyers.
"For European stocks, it is one of the strongest readings in the past five years," said Greetham. Out-of-favour US and UK stocks are unlikely to regain the favour of investors until concern about rising interest rates dissipates, Greetham said. Investors expect the Federal Reserve to boost short-term interest rates by another 50 basis points over the next 12 months.
"Investors say they've been piling out of the Anglo-Saxon markets of the US and the UK where central banks are raising rates to curb economic growth," said Greetham. "The European Central Bank, by contrast, is not trying to slow growth but instead is taking the heat out of the upturn."
Fund managers are holding more cash today than they were at the start of December when the average investor had 4.7% of assets in cash, the lowest in at least two years. Today, the cash holdings of the average investor are much closer to 5.6%, said Greetham.
Bonds are being 'underweighted' in every region of the world and the euro remains the most popular currency, according to Merrill's survey. The euro is favoured even though it has fallen more than 16% against the dollar since its introduction last year, as expansion slowed more than economists expected in the 11 countries that use the common currency.
"The euro is weak because the dollar is so strong and the dollar is so strong because the US stock market is so strong," Greetham said. "If the market falls, the dollar will weaken against the euro."
The survey of fund management companies was carried out by Gallup between 4 and 9 February, and includes comments from 242 chief investment officers, economists and portfolio managers.
Tim Quinson is a Bloomberg reporter
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