The sentiment spike to 67 points, indicating two thirds of managers expect European stock markets to return in excess of 5% over the next 12 months. This is the highest level since August 2007, when almost 90% were of that opinion. Never before have fund managers been this optimistic about European and US equities at the same time.
A fair share of scepticism recommended
This might ring some alarm bells, as macroeconomic prospects are uncertain and valuations don’t look that compelling, to say the least. To add to the gloom: when fund managers made their bullish predictions about European equities back in summer 2007, they did not quite materialise. Instead, the MSCI Europe lost a quarter of its value during the subsequent 12 months.
The sentiment hike comes just months after the biggest monthly decline in the survey’s history in July, which came as European stock markets started to retreat from gains made in the first half of the year. The latest poll was conducted at the end of November, so before markets dropped following renewed turmoil in Greece.
Chasing the stock markets
Fund manager sentiment on the whole has fluctuated significantly in the latter half of the year, very much in line with stock markets. This was not only the case for European equities, but also for emerging market stocks. As markets plummeted in September, so did asset managers’ one-year return expectations. Over the past two months, sentiment has rebounded as markets recovered slightly. Again, the poll was conducted before this month’s losses.
More stable fund selectors
All this might be a sign that asset management companies are not as sure about their predictions as their sentiment scores suggest. Fund selectors, for their part, are steadier in their asset allocation preferences. Pan-European fund selector sentiment has remained fairly flat over the course of the year, with buyers consistently outnumbering sellers in almost all countries. Emerging markets sentiment has been somewhat less stable, peaking in the middle of the year and then retreating somewhat, but it is nowhere near as capricious as the fund manager mood.