Bank of America’s fund manager survey shocked everyone (yes, including us at MONIIFY) by revealing a sudden shift in investor preference from US to Eurozone stocks in January.
But hold up — the story isn’t really investors preferring Europe over the US. We reached out to one of BofA’s strategists for an explanation, given the region was one of the most underweight plays in the last survey.
Turns out that there’s more to it than meets the eye.
According to Elyas Galou, senior investment strategist at BofA, the move isn’t about long-term faith in European equities.
Instead, the shift “resembles more a ‘short-covering’ rather than a longer-term conviction that European equities will outperform their US peers,” he tells MONIIFY.
For the uninitiated: short covering is a step in a short-selling strategy. That’s when someone is buying back borrowed stock to return it to a lender –– this usually leads to a sudden jump in shares.
European stocks surged nearly 5% last month, outpacing the S&P 500’s modest 2% gain.
Read more: Stocks: America’s crushing it, Europe is crashing it
Long overdue
This really is a welcome break for Europe.
The Stoxx Europe 600 lagged behind the S&P 500, China’s CSI 300 and the MSCI World Index over the past year, managing just a 7% gain in dollar terms.
Still, it’ll be worth keeping an eye on whether investors genuinely warm up to Europe in the coming months now that positioning in the region’s stocks has turned neutral, Galou adds.
Read more: The Mag 7 are eating global stock markets alive
Why Europe might still have a shot
Galou pointed out a few reasons investors could finally take a look at Europe:
- Economic pessimism is easing in economies like Germany and France.
- US trade policy is more benign than expected
- Germany is rolling out big fiscal stimulus post-election
So, is this a rebound or just a temporary blip? Keep watching — the old continent isn’t out of the woods yet.
Edited by Ankush Chibber. If you have any tips, ideas or feedback, please get in touch: talk-to-us@moniify.com
