The top choice among European investors is now the London Stock Exchange while sentiment towards the single currency bloc falls. In a vote of confidence in Britain, a survey by Bank of America (BoA) found increasing numbers of investors plan to buy UK-listed shares over the next year.
By contrast, the poll of European Fund managers found German, French, Italian and Spanish stock markets firmly out of favour. A separate report found economic sentiment towards the eurozone is falling at its fastest pace since the covid pandemic.
Germany, the region’s powerhouse with the largest economy, suffered its worst fall in two years, according to ZEW economic research institute. “The economic outlook in Germany is breaking down,” said ZEW president Ahim Wambach, while Robin Winkler, chief German economist at Deutsche Bank, said optimism over a recovery in the country has “completely evaporated”.
The shift in sentiment comes amid political turmoil in France and mounting fear of recession in Germany. Tomase Wieladek, chief European economist at asset manager T Rowe Price, said there was a ‘real risk’ output in Germany would shrink this year and warned it could become trapped in a ‘self-fulfilling loop where weaker expectations lead to weaker growth’.
Meanwhile, Panmure Liberum chief economist Simon French said: “People are starting to wake up to quite how cheap the UK is and how much talent growth remains available if we have a period of stability.’
The Bank of America survey found the share of investors planning to be ‘overweight’ in UK equities over the next 12 months jumped to more than net 30pc this month from less than 10pc in July. The Swiss stock market also recorded a positive rating but sentiment to Italy, France and Spain was negative and more than net 30pc of investors said they would be ‘underweight’ in German stocks.
The UK and Switzerland are the preferred equity markets in Europe, while Germany has become the least preferred,’ the BoA report said. It is a dramatic turnaround from 18 months ago when the same bank labelled UK stocks as the most disliked globally.
The survey further says investors now view London’s top blue-chip stocks as safe bets due to their defensive nature, particularly in volatile times. And they are right, as seen after the turmoil in financial markets over the past few weeks, the FTSE 100 has hardly moved while the Stoxx Europe 600 Index and America’s S&P 500 Index have fallen by more than 4 per cent.
The BoA survey – covering 122 of the world’s most international investors with $265bn (£200bn) in assets – also revealed that most of them plan to go overweight in UK equities over the next year.
Of course, there are deep, structural problems the UK is dealing with – low productivity, a large number of economically inactive citizens and a huge welfare bill to name a few. There have been big fiscal and trade deficits too, while taxes on investment – whether private of corporate taxes – are far too high. Yet overall the UK has proved resilient. The pound is steady, GDP growth has outperformed all estimates for two years and household savings are strong despite recent inflation.
And the latest figures show unemployment is down again, wage demands are cooling and mortgage rates are falling. So it’s not looking bad – certainly when you compare with Germany and France, both suffering badly. Of course, it’s not a surprise, in fact it is quite ridiculous, that the opposition Labour Party, having now formed the new Government after 14 years out of power, has the Chancellor saying they have inherited the worst economic landscape since the Second World War. (The writer is our foreign correspondent based in the UK)
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