BofA’s Europe survey shows biggest surge in investor optimism since June 2020

Investing.com — Investor sentiment in Europe has surged to its highest level since June 2020, according to Bank of America’s latest survey. 

The October survey from BofA Securities posts an increase in optimism, marking the sharpest rise in investor confidence over the past four years. 

Key drivers behind this shift include expectations of Federal Reserve rate cuts and China’s substantial economic stimulus measures.

The survey, which included 231 panelists managing $574 billion in assets, reflects a broad-based uptick in growth expectations, equity allocations, and a retreat from bonds. 

Investors have reacted strongly to the prospect of a “soft landing” for the global economy, with 76% expecting this scenario to unfold, while only 8% foresee a “hard landing,” the lowest percentage in four months. 

This level of optimism is notable, given the previous months of investor caution amid geopolitical tensions and inflationary concerns.

The allocation to equities saw its most drastic jump since June 2020, with 31% of investors now reporting an overweight position, reflecting a 20 percentage point rise from the previous month. 

At the same time, bond allocations saw a record drop, with 15% of respondents now underweight in bonds, further underscoring the shift toward riskier assets like equities and commodities.

China’s economic stimulus also played a crucial role in lifting sentiment, with emerging market stocks and commodities identified as the primary beneficiaries of Beijing’s latest moves. 

Investors indicated a clear preference for sectors likely to benefit from China’s recovery, while government bonds and Japanese stocks were viewed as the biggest losers in the new macroeconomic environment.

Despite the surge in optimism, some caution remains. BofA’s Bull & Bear Indicator, which rose to 7.1 in October, indicates growing froth in the market but remains below the critical “sell” signal of 8.0. 

This suggests that while investor confidence has dramatically improved, it has not yet reached the point of speculative excess.

This rise in optimism is reminiscent of the post-pandemic rebound in 2020, as markets begin to price in an economic recovery driven by supportive central bank policies and fiscal measures. 

For now, investors appear to be betting on a global economy that will stabilize, despite ongoing risks such as geopolitical conflict, inflation, and potential recessionary pressures in the U.S.