UK and Spain emerge as top investment destinations in Europe

UK and Spain have been identified as the most attractive places to invest in Europe, according to a recent survey by Bank of America.

The survey, which included insights from 242 fund managers overseeing a combined $632 billion in assets, was conducted from July 5 to 11 and highlights a notable shift in investor sentiment towards London-listed companies.

The survey underscores the resurgence in popularity of UK stocks, which had previously fallen out of favour with traders. The FTSE 100 index, representing Britain’s largest companies, has often been criticised for its heavy weighting towards “old economy” sectors like energy and utilities, and for lacking a robust representation of tech firms. Despite this, the FTSE 100 has risen by 6% this year, crossing the 8,000-point threshold for the first time, although it still lags behind Wall Street’s major indices, with the S&P 500 up about 20% this year.

In comparison, France’s Cac 40 has increased by approximately 0.5% this year, while Germany’s Dax 40 has seen a 10% rise. Meanwhile, the Italian stock market was the least favoured by fund managers in Europe this month, followed by the French market.

Political stability in the UK is seen as a significant factor driving renewed interest in UK stocks. Labour’s decisive victory in the general election on July 4, securing a majority of over 170 seats, suggests a smooth path for the party’s fiscal and legislative plans.

In contrast, political uncertainty in France had traders worried before recent elections, fearing a shift towards far-left or far-right policies. However, neither extreme group secured a decisive win, implying a more moderate approach to taxation and spending.

In the US, fund managers anticipate high rates on government debt if either the Democrats or Republicans gain control of both the House and Senate, with 48% of participants highlighting trade policy as the most likely area to be influenced by the upcoming presidential election. Donald Trump, the Republican candidate, is expected to adopt a protectionist trade stance similar to his first term if he wins.

Fund managers also assigned a 68% probability to the global economy achieving a “soft landing,” where inflation returns to the central banks’ 2% target without significantly harming growth.