Investors raise cash holdings, see limited equity upside - BoFA survey

By Saikat Chatterjee

LONDON (Reuters) -European investors raised their cash holdings to the highest in a year, while an overwhelming majority expect only single-digit upside to equities as Europe's economic outlook cools, a survey by investment bank BofA Securities showed on Tuesday.

Less than half of respondents in the bank's monthly fund manager survey expect the European economy to further improve over the next 12 months, marking the lowest proportion since last June and a steep drop from July.

Cooling growth expectations are mainly due to COVID concerns, with 19% of investors citing the Delta variant as the biggest tail risk to the European economy, closely behind inflation risks and worries about a so-called "taper tantrum" as central banks phase out emergency stimulus measures.

COVID concerns were only 9% in a similar survey in May.

As a result, a net 23% of investors were overweight cash, the highest in a year, while 88% of respondents expect single- digit upside to European stocks from current levels, said BoFA, part of Bank of America.

About 70% of BofA's clients, with $749 billion in assets under management, said they expect the reflation trade has further room to run, compared with 64% in the July survey.

With inflation and taper tantrum risks topping investor concerns, rate-sensitive cyclical sectors like banks and insurance rank among the top three European sector overweights, BoFA said, along with technology.

A net 36% of global investors said they were overweight European equities, down from 45% last month. About 2% of global investors were underweight UK equities, compared with slightly overweight in the previous three months.

(Reporting by Saikat Chatterjee; Editing by Rachel Armstrong and David Holmes)