Investors Show Surge of Confidence in Emerging Markets and Euro Zone Stocks

The recent survey conducted by Bank of America revealed a surge of optimism among investors towards emerging market equities. For the first time since April 2017, investors have rushed into emerging market equities at an accelerated pace. Global growth expectations are at a two-year high, and “risk appetite” is currently the highest it has been since November 2021. This influx of positivity can be attributed to a series of stronger-than-expected U.S. data releases, which have helped buoy global stock markets.

Euro Zone Stocks Experience a Boost

In addition to the enthusiasm towards emerging markets, investors also showed a renewed interest in euro zone stocks. According to the survey, this interest is the quickest it has been since June 2020. The upbeat sentiment towards euro zone stocks reflects a more positive outlook on the European economy as a whole.

One notable trend highlighted in the survey is the change in investors’ expectations regarding bond yields. While 40% of respondents anticipate lower bond yields in the next 12 months, this number is significantly lower than the 62% reported in December 2023. This shift in sentiment could be influenced by the overall positive outlook on global growth and stock markets.

Despite the general optimism in the market, there are still concerns looming. Inflation is perceived as the biggest tail risk for markets, contrasting with the fear of a global recession that was prevalent in December. This shift in perception suggests that investors are closely monitoring economic indicators and potential risks that could impact their investments.

Interestingly, the survey noted outflows from U.S. equities in March, particularly from discretionary and tech stocks. However, the “long Magnificent Seven” tech companies, including Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, remained the most crowded trade. Despite some reservations, investor optimism is evident as survey respondents have expressed positivity about corporate profit growth for the first time since January 2022.

The recent trends in investor sentiment towards emerging markets, euro zone stocks, and bond yields reflect a broader shift in market dynamics. While optimism is prevailing, investors must remain vigilant in monitoring potential risks and market developments to make informed investment decisions.