The Strategist

Investors are not afraid of the EU's collapse anymore

05/17/2017 - 14:27

Portfolio managers of the largest investment funds have become less afraid of the EU’s collapse. Supporters of a united Europe, primarily, the centrist Emmanuel Macron, are winning, slowdown of China's economy is gradually becoming the number one risk in the investors’ view. At the same time, shares of European companies are the most popular, while investors prefer to avoid American and Russian markets.

Analysts of Bank of America Merrill Lynch have conducted their monthly survey of portfolio managers (representatives of 213 funds with assets worth $ 645 bln) and found out that investors are optimistic about prospects of growth of profits of global corporations. According to the survey, 56% of respondents expect this in the next 12 months. Investors have not demonstrated such optimistic sentiment for a year.

The restoration of optimism was facilitated by the presidential elections that ended in France. However, from February to April, portfolio managers called the hazard of the EU's disintegration the key risk with unpredictable consequences. Now, investors are more afraid of the slowdown of China's economy (31%), the fall of the bond market (18%), the trade war (16%), delays in corporate tax reform in the US (15%).

Despite the persisting risks, investors are willing to increase their investments in the venturesome assets. According to the survey, the number of managers who increased their investments in shares, exceeded by 45% the number of those who reduced them. This is the second-largest result in the last two and a half years. Shares of European companies are still enjoying the main demand from investors. In April, the number of managers favoring the European markets exceeded by 48% the number of those who adhered to the opposite point of view. In May, this figure rose to 59%.

However, investors are still worried about developing markets. Number of managers, whose investments in shares of emerging markets (EM) companies exceeded the indicative level, by 41% exceeded the number of managers who reduced their share. This is confirmed by the EPFR data, according to which over the past four weeks, EM funds attracted more than $ 7 billion. 

The EU High Representative for Foreign Affairs and Security Policy, Federica Mogherini, is also trying to convince the doubters that the disintegration of the European Union is impossible:

"For 60 years of its history, we have become a superpower seeking peace in the European Union, as well as a superpower that seeks security and democracy, and we support reconciliation processes in all corners of the world, from Afghanistan to Myanmar", Mogherini said. According to her, the EU provides active support to partners in the east, including Ukraine, which will soon establish a simplified visa regime, as well as promote economic development of African countries.