A fresh monthly survey from BofA Securities indicates that European economic momentum is expected to strengthen in the coming months, with a substantial share of asset managers crediting Germany's fiscal stimulus for the shift.
Of the 190 professionals who took part in the poll, a record 74% said the effects of Berlin's fiscal measures have begun to appear in macroeconomic data, BofA analysts reported. Under Chancellor Friedrich Merz, Germany has stepped up infrastructure and military spending, moving away from prior fiscal restraint to address potential defense concerns related to Russia.
When asked about the principal catalyst behind firmer regional growth, 63% of European investors identified German fiscal stimulus - slightly lower than the 67% who said the same in January's survey. In addition, just over a fifth of respondents now point to higher European Union defense spending as a key growth driver, a marked rise from 5% in the prior month.
Views on the world's two largest economies are more subdued. A plurality - roughly 45% of respondents - expect growth in the U.S. and China to flatline over the near term.
Looking further ahead, expectations tilt in favor of Europe: 70% of the panel expect stronger European growth over the next twelve months, while 57% foresee better global growth over that horizon. BofA's analysts noted both readings are around their highest levels since mid-2021.
Collectively, the survey suggests that German fiscal policy together with higher EU defense outlays could allow Europe to decouple from global growth trends and shifts in U.S. policy, according to the BofA note.
In portfolio preferences, Germany emerges as the most favored equity market in Europe, while France is described as "once again the most unloved." A net 41% of investors see upside for European cyclicals versus defensives - a level close to a one-year high. More than a quarter of respondents expect small-cap stocks to outperform large-cap peers, the strongest reading in four months.
Sector positioning is concentrated. Health is the largest consensus overweight in Europe, followed by banks and industrials, with utilities and telecoms also favoured. Autos are the biggest consensus underweight industry, trailed by media and consumer products.
The survey covered managers overseeing a combined $512 billion in assets under management and was conducted between February 6-12.
Methodology note: The findings and percentages cited above reflect responses from the 190 asset managers who participated in BofA Securities' monthly survey during the specified field dates.