Some 13 out of 15 asset managers who responded to June’s poll expect European equities to return more than 5% in euro terms over the next 12 months. With the Euro Stoxx 50 down 4% on Monday after the collapse of talks between Greece and its creditors, their rosy assessment now seems a fully fledged mishap.
For European equity markets to live up to asset managers’ expectations, they now have to rally by at least 13% in the next 11 months. Although the recent bear market seems to have caught asset managers by surprise, it’s not impossible that they will recover their losses. The QE-fuelled rally which ran from the start of the year until mid-April saw share price grow by more than 20%.
Just a blip?
While many fund selectors have been decreasing their allocation to European equities as Grexit fears were rising, quite some of them are convinced the Greek drama has only temporarily interrupted a European equity bull market underpinned by solid fundamentals.
“We had anticipated that there would be a correction of about 10% if a Grexit occurs,” says Arild Orgland, managing partner of the Norwegian wealth manager Industrifinans. “With Monday’s price falls, I believe we are now almost there.”
Orgland sticks to his overweight to European equities because of the attractive valuations compared to US equities (which are actually heavily disliked by the same asset managers who are so much in love with European stocks). “The Shiller P/E ratio is much lower in Europe than the US, and I see improving earnings momentum in Europe,” Orgland says.
Another European investor who did not reduce exposure to European equities is Jaap Bouma, a senior portfolio manager for Optimix in the Netherlands. “It’s extremely difficult to time when to step back in again. I wonder how all these people who reduced their exposure to European equities are going to do that,” he told Expert Investor Europe recently.
Click here to view the full results of the latest EIE fund manager sentiment survey.