Covid-19 concerns clouding the outlook for stocks, BoA survey says

A majority of global investors continue to expect the rally in European equities to continue in 2022, the results of a closely-followed survey revealed.

However, growth expectations had been cut "sharply", partly on the back of concerns about the Covid-19 Delta variant, making investors a tad more cautious.

According to Bank of America's July fund manager survey, a "mere" 44% of survey respondents were now expecting further improvement in the euro area economy over the next 12 months.

That was the least since June and down from a peak of 94% in March.

Strategists at BoA concurred, telling clients: "We agree and see little scope for a renewed growth acceleration, given the advanced stage of reopening and clear signs of a loss in US growth momentum."

In parallel, 19% of investors now saw Delta as the biggest tail risk, up from 9% in May, against 20% who believed inflation was the biggest threat and 22% who worried most about a so-called 'taper tantrum' in the bond market.

Just over half of the respondents, or 51%, expected the equity rally to continue into 2022, the same proportion as in June, but 40% now thought that it would end in the fourth quarter, up from 20% in the previous month's survey.

A net 23% of investors meanwhile said they were now overweight cash.

On the flip-side, only 5% saw downside risk for European equities by year-end.

A majority of investors or 70% still also saw upside for the so-called 'reflation trade', with Technology, Banks and Insurers the most preferred sectors.

Furthermore, in anticipation of rising bond yields, 67% of investors still saw Banks as attractive, BoA said.