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European unity

It would be a dull market if everyone agreed on the major questions of the day.

But the latest Bank of America European fund manager's survey shows a near universal expectation (92 per cent) that a recession is coming to Europe. 

About the only divergence of opinion is which of the cocktail of concerns is the greatest, with respondents split between the view that the recession will be caused by the energy crisis (68 per cent), the slowing growth in China (76 per cent) or the US.

The continental European equity market is particularly exposed to Chinese demand due to the prevalence of luxury goods companies.

The UK has fewer of these, though anyone who has ever been to the Bicester Village shopping centre will be aware that a slowdown in China also impacts the UK.

A majority of respondents (79 per cent) take the view that inflation will decline over the coming year, with a slowdown in demand responsible for this.

As a result of that view, respondents don't expect bond yields to rise as investors, wary of recession, return to the perceived safe havens. 

As a result of all of the above, 53 per cent of respondents feel a decline in European equities over the coming year, that figure represents a rise from 38 per cent who held that view last month.

Of those expecting a further decline in European equity markets, around a third expect the decline to be greater than 10 per cent. 

Given all of the above, it's perhaps not a surprise that respondents favour energy and quality stocks over cyclicals right now. 

The average allocation to European equity funds in the balanced portfolios of the DFMs we cover is 5 per cent, with Liontrust the outlier with 18 per cent.

Several firms have zero allocated to European equity funds, including Tacit and Wise, while Brooks Macdonald have the wonderfully precise 0.96 per cent in a European equity fund. 

Average allocation to European equities among DFMs has bumbled along at around 5 per cent for most of the history of our database and the fact this continues to be the case suggests allocators are largely unmoved by current concerns.

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