Fund Managers Shift Focus to European Stocks Amid Market Optimism

In a significant turnaround, fund managers are increasingly optimistic about European equities, as highlighted by Bank of America's (BoA) latest European Fund Manager Survey conducted between July 4 and July 10, 2025. The survey, which polled 222 fund managers managing a total of $504 billion in assets, revealed that a net 81% of European investors anticipate positive growth for European stocks over the next year. This marks a notable rise in bullish sentiment compared to prior months, where only 75% expressed similar optimism.

The survey results indicate that a net 41% of respondents are now overweight on European equities, reaching a four-year high. Notably, over 20% of fund managers believe that the upside for regional stocks could exceed 10% within the next twelve months. However, it is essential to acknowledge that these sentiments were recorded before the announcement of a 30% tariff on goods imported from the European Union by U.S. President Donald Trump.

According to the report, approximately 75% of the fund managers surveyed believe that recent fiscal policies in Germany, increased European defense spending, and deeper regional integration could potentially reverse Europe's historical underperformance in the global market. "Fiscal easing is expected to help insulate the region from U.S. economic headwinds," noted the BoA strategists accompanying the survey findings.

In terms of sector allocation, regional banking and technology stocks are at the forefront, with over 20% of managers expressing a preference for these sectors. The Stoxx 600 Banks index, which encompasses major European banks, has gained nearly 30% in the first half of this year, buoyed by strong performance from institutions like Deutsche Bank and Barclays. More than half of the surveyed fund managers still find the European banking sector appealing post-rally.

Other favored sectors include industrial goods and services, insurance, and construction, with one-third of investors forecasting industrials as the best-performing sector over the coming year. Conversely, the automotive sector remains a concern, with approximately 30% of managers reporting an underweight position due to the adverse impact of tariffs.

When examining country-specific preferences, Germany emerges as the most favored market, with about 40% of fund managers selecting it as their top choice in Europe. The DAX index has surged by nearly 22% this year, benefiting from substantial rallies among defense contractors like Rheinmetall and Commerzbank. In contrast, Switzerland has been viewed less favorably, with many fund managers citing challenges posed by the strengthening Swiss franc and its implications for domestic economic policies.

This survey underscores a pivotal moment for European equities, reflecting a shift in investor sentiment that could influence market dynamics in the months ahead. The implications of these findings could extend beyond regional markets, potentially reshaping investment strategies globally as economic conditions evolve.

**Expert Insights**: Dr. Edward Clarke, a financial analyst at the London School of Economics, comments, "The optimistic outlook for European equities signals a potential shift in global investment dynamics, particularly as U.S. markets face increased scrutiny and volatility. Fund managers' renewed interest in Europe could lead to a more balanced investment landscape."

In conclusion, as fund managers pivot towards European markets, driven by a combination of fiscal policy optimism and sector-specific performance, the future trajectory of European stocks will be closely monitored by investors globally. The interplay between European economic policies and U.S. tariff implications will be critical in determining the sustainability of this bullish sentiment moving forward.