Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

UK funds bullish on eurozone equities as political risk recedes

EconomyMay 31, 2017 07:20AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A plastic bull figurine, symbol of the Frankfurt stock exchange is pictured in front of the share price index DAX board at the stock exchange in Frankfurt

By Claire Milhench

LONDON (Reuters) - British fund managers have raised their allocations to eurozone equities to the highest level since August 2016 after an emphatic French election win for centrist Emmanuel Macron pushed back the threat of a European Union break-up.

Macron was elected French president on May 7, defeating his far-right rival Marine Le Pen who had threatened to take France out of the EU and the euro.

This triggered a relief rally in European equities, which look set to end May with their fourth straight month of gains (STOXX). A Reuters poll of 15 UK-based wealth managers and chief investment officers, conducted between May 15 and 25, found investors almost unanimously bullish on European stocks.

"Political risk in 2017 has all but gone, with the German election in October appearing to be a foregone conclusion, so allied with the recovery being seen in the real Eurozone economy this is surely positive for European equities," said Jonathan Webster-Smith, head of the multi-asset team at Brooks Macdonald.

Within their global equity portfolios, fund managers raised their eurozone exposure by one percentage point to 16.1 percent, whilst trimming U.S. allocations from 31.3 percent to 30.1 percent, the lowest level since August 2016.

Poll participants who answered a special question on whether there was further upside for European equities were unanimous in their agreement.

"There is significant potential for catch up relative to the U.S. due to compelling valuations, a rebound in European economic growth that we think is sustainable, and resurgent corporate earnings," said David Vickers, senior portfolio manager at Russell Investments.

Even managers who were skeptical about the short-term outlook for European equities, given the magnitude of their recent outperformance, were optimistic about the medium term.

"The European business cycle tends to lag the U.S. cycle by about six months and economic data in Europe is likely to look relatively good for a while," said Trevor Greetham, head of multi-asset at Royal London Asset Management.

Overall, investors raised equities to 49.1 percent of their global balanced portfolios, the highest since January 2016.

Greetham predicted monetary policy would remain loose, noting there was little sign of the surge in wages that marks the beginning of the end of an expansion.

STERLING BOUNCE

Investors were more cautious on UK stocks and bonds in the run-up to a snap general election called for June 8. UK stocks were cut to 23.7 percent of global equity portfolios, and UK bonds fell to 26.7 percent of global bond portfolios, from 29.5 percent in April.

About two-thirds of those who answered a special question on sterling thought the pound would rise if the Conservative party won with an increased majority as this would likely strengthen Prime Minister Theresa May's hand in the Brexit negotiations.

Sterling hit an eight-month high in mid-May, having gained 3 percent against the dollar in April after the snap election was announced. That left some wondering if the rally had much further to run.

Ken Dickson, investment director at Standard Life (LON:SL) Investments, expected sterling to rise if the Conservatives increase their majority but added that "the reaction will be modest as the market already expects an improvement in the governing party's working majority".

He also warned there might not be a linear relationship between the size of the majority and any subsequent rally in sterling: "Backbenchers tend to be more 'misbehaved' when governments have super-large majorities."

Webster-Smith of Brooks Macdonald sees upcoming Brexit negotiations as key, arguing that a quick agreement over the 'exit fee' being demanded of the UK would bode well for a trade agreement with the EU and subsequently for sterling.

But he added: "The EU have promised full transparency in the talks which could enhance sterling volatility depending on the news being positive or negative."

UK funds bullish on eurozone equities as political risk recedes
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email