BofA’s Raedler Sees Bottom for European Stocks After Steep Rout

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(Bloomberg) — The selloff in European equities has gone too far as most of the impact from negative economic news is now priced in, according to Bank of America Corp. strategists.

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The team led by Sebastian Raedler raised the region’s stocks to neutral from negative, saying the Stoxx Europe 600 Index had fallen below their target of 410. Still, even after a nearly 20% drop from a record high this year, they warned that it was too soon to turn outright positive given downside risks to growth and upside for real yields.

“We are only turning neutral, not positive, given that the main catalyst for positive equity price momentum is accelerating growth momentum — and we see little potential for that,” the strategists wrote in a note.

Raedler turned bearish on European stocks in October 2021 amid warnings of surging inflation and slowing economic growth — both of which were exacerbated this year as central banks kicked off aggressive monetary tightening. European stocks are now trading at the lowest since February 2021 following the US Federal Reserve’s biggest rate hike since 1994 and the Stoxx 600 is about 19% below its January record high.

The strategists said they remained overweight in European growth versus value stocks and defensive bond-proxies, while being underweight banks.

A separate note from Bank of America, citing EPFR Global data, showed that outflows from European stocks continued for an 18th consecutive week, although global equity funds attracted inflows of $16.6 billion, led by exchange-traded funds.

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