- The latest May fund manager survey released by Bank of America shows that European stocks are experiencing one of the most severe fund outflows since records began in 1999, with a net 4% of respondents underweighting European assets.
- Global economic pessimism is fading, with only 4% of respondents expecting a hard landing. However, this objective optimism has not benefited Europe, as geopolitical risks have led investors to quickly return to the U.S. market.
- The European Stoxx 600 index rose by 0.52% today, led by the defense sector, influenced by U.S. President Trump's announcement of delaying an attack on Iran due to a new peace proposal, while Wall Street stock index futures edged lower.
Historic Transatlantic Fund Rotation
A special survey by Bank of America targeting European fund managers clearly illustrates the dramatic shift in international capital positions between the U.S. and Europe. Conducted from May 8 to 14, this regional survey covered 92 respondents managing a total of $2.09 trillion in assets. The results show that, compared to the global market, a net 4% of respondents are underweighting European stocks. This figure starkly contrasts with the net 35% overweight position at the onset of the Iran war. Meanwhile, a net 20% of European fund managers currently overweight U.S. stocks, whereas before the geopolitical conflict, this indicator was a net underweight of 22%. This dramatic position swap constitutes one of the most rapid fund rotations from European to U.S. assets in over two decades.
Diverging Growth Expectations and Tech Capital Expenditure Barriers
The core variable causing pessimists to resurface in Europe lies in the differing resilience of economic structures on both sides of the Atlantic to geopolitical risks and the divergence in capital expenditure in emerging industries. The survey indicates that over 50% of respondents expect U.S. stock market performance to surpass Europe's in the next 12 months, a significant jump from 29% in April. European economies are more susceptible to potential negative impacts from energy price shocks due to supply chain and resource endowment vulnerabilities, forcing global investors to factor in higher risk discounts when allocating assets. In contrast, large U.S. tech companies are investing heavily in AI data centers and computing infrastructure. This long-term capital expenditure barrier provides a solid valuation premium for the U.S. tech sector, widening the actual performance gap between the indices on both sides of the Atlantic.
Improved Earnings Prospects and Anchored Interest Rate Policies
From this year's actual performance, the adjustment in capital flows has been corroborated by market data. The S&P 500 index has recorded a 7.2% gain year-to-date, with the seven major tech stock indices driving a 12% increase. In contrast, the European Stoxx 600 index's gain has narrowed to 3.9%. Globally, as fund managers increase overall stock allocations at a record pace, pessimism about global economic growth is actually receding. The marginal improvement in corporate earnings prospects, combined with global market expectations for the Federal Reserve to enter a rate-cutting cycle, collectively forms the macro anchor supporting global stock assets. If the Fed's future interest rate policy path unexpectedly shifts to a more hawkish stance, the current global asset allocation model may face a new round of price reassessment.
