Euro stocks boost on delay to US tax cuts

Global investors’ enthusiasm for European stocks continues to surge, the latest Bank of America Merrill Lynch survey of portfolio managers showed. The swing of funds into the region, and away from the US, was one of the largest since 1999.

Allocation to US equities fell to it lowest since January 2008, the survey said, adding that investors cited rich valuations and potential delays to US tax reforms as key concerns. The so-called ‘Trump trade’, which saw major US stock indexes hit record highs and lifted bond yields on hopes that US president Donald Trump would push through business-friendly reforms, has faltered in recent weeks because of worries over the new administration’s ability to deliver on promises.

US treasury secretary Steven Mnuchin said the Trump administration’s timetable for tax reform is set to falter, following setbacks in negotiations w over healthcare, the Financial Times has reported. 40% of investors surveyed do not expect tax reforms to be passed before 2018, the Bank of America survey said.

In Europe, the mood for stocks has improved. The brightest earnings outlook for European firms in seven years, a recovering banking sector, and better economic data have bolstered investor appetite and drawn funds back into the region. European stocks traded at about 15 times forward earnings, compared with a multiple of 17.7 times for the US, according to Thomson Reuters data. The risk that European elections might lead to the disintegration of the EU slipped sharply from last month’s survey, though it remained the biggest “tail risk” for global investors.

Reuters