Investor bullishness for euro zone stocks, economy soars: survey

[February 17, 2015]  By Jamie McGeever

LONDON (Reuters) - International investors are their most optimistic on euro zone stocks for several years, confident that the European Central Bank's upcoming bond-buying stimulus will have the desired economic effect, a closely watched survey said on Tuesday.

Exposure to euro zone equities jumped in February to the highest since May 2007 and the second-highest on record, according to the monthly bank of America Merrill Lynch survey of 196 fund managers who run $559 billion of funds.

A net 55 percent of those surveyed were overweight euro zone stocks compared with a net 20 percent in January, and those expecting a stronger European economy rose to 81 percent from 49 percent the month before.

"Sentiment has gotten ahead of the fundamentals on European equities. It is as if there is not a single bear left," said Manish Kabra, European equity and quantitative strategist.

The study -- titled "In QE We Trust" -- also found Europe is the most preferred region to be overweight stocks over the coming year, according to a record 51 percent of respondents in the study. That was up from 18 percent in January.

On the flip side of that optimism the biggest reduction in positions from the previous month was in U.S. stocks, where investors cut their overweight position to 6 percent from 24 percent.

The relative U.S.-euro zone positioning is the most extreme since November 2007. "Contrarians would go long U.S. equities and short euro zone equities," BAML said in the report.

Still, overall exposure to global equities rose to the highest in seven months, the report said.

Investors scaled back bets on global bank stocks, however, cutting their overweight position to just 1 percent from 10 percent in January.

The most overcrowded trade in global markets remained long U.S. dollar, according to 72 percent of those polled. The next most overcrowded trade was long peripheral euro zone sovereign bonds, according to less than 10 percent of respondents.

More investors said bonds was now the asset class most vulnerable to a rise in volatility this year compared with stocks in January's survey. Worries over foreign exchange market volatility also rose.

Despite the increase in equity exposure, demand for safe-haven cash also rose, to 4.7 percent from 4.5 percent in January. Cash levels above 4.5 percent are a contrarian "buy" signal for equities, and below 3.5 percent triggers a "sell" signal, BAML said.

The survey was conducted Feb. 6-12, after elections in Greece that brought in an anti-austerity government but before talks between that new government and the euro zone on extending the country's bailout had broken down.

(Reporting by Jamie McGeever; Editing by Larry King)

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