Sentiment towards European and UK equities from intermediaries is at a record high, according to the Baring Asset Management Investment Barometer.
Overall, 91% of IFAs are favourable towards European equities, up from 63% a year ago, while 93% are now favourable towards to UK equities (from 79%) – the highest since the quarterly survey was launched.
The number of intermediaries ‘very’ favourable towards European equities has increased sharply to 39% from 18% a year ago and 4% two years ago. The number of intermediaries that are ‘very’ favourable towards UK equities has increased to 40% from 29% and 13%, respectively.
The highly positive sentiment towards European equities comes as the number of IFAs that believe Eurozone growth problems will be the biggest global macro-economic challenge has declined, to just under half (47%) from 71% in the first quarter of 2013.
The biggest global macro-economic challenge, cited by 59% of intermediaries, is the inability of over leveraged economies to reduce debt. The third most significant challenge cited by respondents was a continued slowdown in growth in China. Slightly over a third (35%) of IFAs believe this will be the biggest threat to investment growth in the next six months, down significantly from more than half (55%) in the previous survey.
Rod Aldridge, head of UK Wholesale Distribution at Barings, said: "The overarching sentiment from intermediaries towards Europe and the UK is clearly strong. In Europe, Barings expects to see continued support for asset prices in 2014 and equities to outperform bonds as the economic recovery continues. The UK is likely to be one of the strongest economies next year, with growth likely to be towards the 3% level, in our view."
Despite the recent fall in UK inflation (CPI) to 2% as at December 2013, more than three quarters (78%) of intermediaries believe the UK will experience rising inflation over the next three years. Just 4% believe the UK will suffer from deflation or disinflation. A significant majority (85%) report that clients are still concerned about the effect that inflation is having on their cash investments, up year-on-year from 80%.
Rod Aldridge added: "While sentiment has turned strongly positive for both Europe and the UK, it is important for investors to bear in mind that uncertainties remain. The next 12 months will be very important with regards to a pan-European recovery, particularly for economies such as France and Italy. In this environment, we believe that investors need to actively manage opportunities and risks and take a long-term view."