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French stocks have become the least loved major equity class in Europe three months ahead of its presidential election, according to a survey of global money managers which points to a revival of animal spirits amid rising global growth.
Sentiment towards French stocks has fallen to its lowest level in nearly two years this month, Bank of America Merrill Lynch’s latest survey of investors has revealed, despite a broadly bullish investor outlook for the rest of Europe.
Underscoring a sharp reversal in the prospects for global growth, 23 per cent of those surveyed said they were now braced for an economic “boom” of above-trend global growth and inflation over the next 12 months. That has climbed from just 1 per cent last year, in another major signal of the “Trump” effect on investor expectations.
The new White House administration is promising a blitz of major corporate tax cuts and bumper government spending, lifting the dollar, inflation expectations and short-run GDP forecasts in the world’s largest economy.
By contrast only 43 per cent of money managers said they expected “secular stagnation” to take hold in the next 12 months, dropping from 88 per cent over the same period in 2016. Secular stagnation – a term revived and popularised by former US treasury secretary Larry Summers since the financial crisis – describes a persistently low growth and low inflationary environment.
In Europe, confidence remains elevated but investors are increasingly eyeing a packed roster of major elections in the single currency area over the next six months. The threat of a “disintegration” of the EU project this year was cited as the single biggest “tail risk” facing investors, at 36 per cent followed by a global trade war at just under a third.
Bearish sentiment has been concentrated on France – a founding member of the EU where rising euroscepticism has spooked bond investors. French bonds have been hit by an unpredictable election race, where the far-right Marine Le Pen is promising to take the country out of the eurozone and the erstwhile favourite for the job – right-wing François Fillon – has been engulfed in a family payments scandal.
France’s 10-year bond yields have climbed from a record low 0f 0.1 per cent to over 1 per cent since the autumn. The country’s main stock index, the CAC 40 is up just 0.6 per cent this year, under performing its German rival the Dax (up 2.5 per cent) and the FTSE 100 (up 2 per cent) in 2017.
Latest betting odds from Betfair’s exchange show Ms Le Pen has a 69 per cent chance of winning the first round vote in late April, but will be beaten in the second round vote a week later.
BaML’s global survey was carried out with 210 investors managing $632bn in assets.