The UK and Spain have been identified as the most attractive places to invest in Europe, according to a recent Bank of America survey.
The survey, which surveyed 242 fund managers overseeing a combined $632 billion in assets, was conducted from July 5 to 11 and highlights a marked shift in investor sentiment towards London-listed companies.
The survey underscores the resurgence of UK stocks, which had previously lost their appeal to traders. The FTSE 100, which represents Britain’s biggest companies, has often been criticised for being overweight “old economy” sectors such as energy and utilities, and for not having a strong representation of technology companies. Despite that, the FTSE 100 is up 6% this year, crossing the 8,000-point threshold for the first time, although it still lags Wall Street’s main indices, with the S&P 500 up about 20% this year.
By comparison, France’s CAC 40 is up about 0.5% this year, while Germany’s DAX 40 is up 10%. Meanwhile, Italy’s stock market was the least favored by European fund managers this month, followed by France.
Political stability in the UK is seen as a key factor driving renewed interest in UK equities. Labour’s decisive victory in the July 4 general election, securing a majority of more than 170 seats, points to a smooth trajectory for the party’s fiscal and legislative plans.
In contrast, political uncertainty in France had traders worried ahead of the recent election, fearing a shift towards far-left or far-right policies. But neither extreme group managed to secure a decisive victory, meaning a more moderate approach to taxes and spending is likely.
In the US, fund managers expect interest rates on government debt to rise if Democrats or Republicans control the House and Senate, with 48% of respondents citing trade policy as the area most likely to be affected by the upcoming presidential election. Republican nominee Donald Trump is expected to adopt a similar protectionist trade stance to his first term if he wins.
Fund managers also gave a 68% chance that the global economy will achieve a “soft landing,” in which inflation returns to central banks’ 2% target without significantly hurting growth.
