Investors ditch European boom bets as Iran war stagflation fears soar
The Iran war is hammering market sentiment in Europe, and investors are increasingly gloomy about the prospects for the continent’s growth, according to Bank of America ‘s latest survey of European fund managers. They’re slashing exposure to eurozone-area stocks amid fears of flatlining growth and a stagflation shock resulting from the ongoing conflict , per the bank’s survey for March. Oil prices have surged since U.S. and Israeli strikes on Iran began on Feb. 28, with Brent crude , the international benchmark, surging more than 56% over the past month to reach almost $110 a barrel on Wednesday. The de facto closure of the Strait of Hormuz , a critical shipping lane, has disrupted about 20% of global oil supply. That’s rattled investors in Europe, a net importer of oil and gas, with the continent’s Stoxx 600 benchmark shedding 4.3% over the past month. .STOXX 1M mountain Stoxx 600. Stagflation is now “the consensus expectation” for the macro regime in the coming months, BofA analysts, led by investment strategist Andreas Bruckner, said. The bank’s survey data suggests fund managers are cutting back bets on European industrial stocks — previously seen as a key winner from the continent’s reindustrialization ambitions . Instead, they’re pivoting towards technology and basic materials names, with the latter now tipped to be the number one performer this year, followed by healthcare, BofA’s survey found. ‘Diminished, not derailed’ Overall, 21% of survey respondents remain overweight in European equities in their global portfolios. But that’s sharply lower than the 35% seen in February’s survey. By comparison, a net 17% of respondents report being underweight in U.S. stocks, down from 22%, in further evidence that investors are scaling back on the “Sell America” trade . While the vast majority of survey respondents (96%) regard an outright recession in Europe as off the table, a majority (54%) now expect European growth to flatline this year — a sharp rise from 15% in February’s survey. Conversely, the number of investors expecting European growth to accelerate has tumbled, from 74% to 29% month-on-month. @LCO.1 1M mountain Brent crude. Investor bullishness on European stocks has been “diminished but not derailed,” the BofA analysts said, adding that 71% of respondents still see upside over the next year, down from almost 90% a month ago. But managers are also building stagflation pressure into their investment theses. The percentage of respondents expecting stagflation surged from 15% to 50%, as a net 39% expect European core inflation to be higher in a year, up from 11% in last month’s survey. The analysts added expectations of EU inflation were at their highest since 2022, adding that stagflation was “now the primary view of the market’s macro regime.”
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