|
|
According to the market sentiment of managers with a combined $814 bn under management, a net 8 per cent now expect the European economy to weaken over the next twelve months, down 16 percentage points from April. Patrik Schowitz, European equity strategist at Bank of America Merrill Lynch, said: “The primary worry is the debt crisis”.
The credit default swap market, which investors use to bet or insure on the likelihood of a bond default, is pricing in a 65 per cent probability of a Greek debt default over the next five years. According to the Bank of America Merrill Lynch Fund Manager Survey, 36 per cent of managers considered ‘EU sovereign debt funding’ the biggest tail risk, up from 21 per cent in April. Fears over commodity price inflation fell from 34 per cent to 16 per cent.
Bill O'Neill, chief investment officer at Merrill Lynch Wealth Management, Emea, said: “For European equities we see upside through the rest of 2011, from current levels. We prefer core Europe -
European companies are also preparing for the worst. According to data firm CreditSights, eurozone firms are reducing debt levels and increasing cash levels at the fastest rate since the European Central Bank began publishing data in 1999.
European focused equity funds posted inflows of over $1 bn last week, according to data from EPFR Global. According to the Bank of America Merrill Lynch survey, a net 4 per cent of fund managers are expecting stronger earnings per share over the coming year, compared to last month when a net 2 per cent of managers expected earnings per share growth to weaken.