Market sentiment: "Exodus to Europe "

19 March 2025. FRANKFURT (Goldberg & Goldberg). For weeks now, local stock markets have been benefiting from the inflow of foreign capital, primarily from the USA. But not only them, as the Bank of America (BoA) survey of international fund managers published yesterday revealed. Among other things, the survey revealed that there must have been an exodus from US equities, most of which has moved towards Europe. A net 23% of asset managers stated that they were now underweight in US equities. In the previous month, a net 17% were still overweight there, resulting in a record minus of 40 percentage points. At the same time, eurozone equities recorded a gain (of 27 percentage points) for the third time in a row, as 39% of fund managers now stated that they were overweight in this region; incidentally, this is the highest overweight in the survey since July 2021.

If we look back three months, when 25% of fund managers were still underweight in eurozone equities and 36% were overweight in the US according to the BoA survey, the true extent of the allocation change becomes clear. A shift that also benefited the DAX, which has risen by 3.1% week-on-week since our last sentiment survey; probably also boosted by the reform of the debt brake passed yesterday in the Bundestag and the special fund for infrastructure that was also passed.

In an observer position
So while the international fund managers in the above-mentioned survey (conducted between March 7 and 13) gave a clear vote in favor of eurozone equities, the domestic institutional investors with a medium-term trading horizon that we surveyed tended to show a “cautious” restraint. This is because our Börse Frankfurt Sentiment Index fell by 4 points compared to the previous week to a new level of -2. This is primarily because the bull camp has lost 5 percentage points as a result of profit-taking (presumably in the vicinity of the previous all-time high of March 6). Interestingly, this reference point has so far only been marginally exceeded.

Among private investors, however, the bottom line is that a little more optimism has prevailed. Our Börse Frankfurt Sentiment Index rose by 8 points in this panel to a new level of +13. The bull camp increased by 5 percentage points - almost equally at the expense of the bears and the neutrals. The different trends in the two subgroups are again interesting. While there was a clear countermovement towards the bull camp among the investors surveyed via social media, the other investors significantly reduced their bullish commitments from the previous week, with almost all of the optimists' losses going to the neutral investors. All in all, the gap between the two subgroups has not changed significantly, albeit now with the opposite sign, as those surveyed via social media have returned to their previous, typical optimism.

Pessimists under pressure to act
With today's survey, a new sentiment gap has opened up between private and institutional investors. While sentiment in the latter panel is practically neutral, even after several months of comparison, the proportion of pessimists is still comparatively robust at 40% of respondents. The fact that there has been little change here so far may be due to the fact that the majority of the commitments are presumably under water. However, we suspect that most of these investors would already be prepared to cover their positions in the 22,600/650 points range. Even if this demand would support the DAX in the event of a setback, there is still a relatively high probability that the stock market barometer will continue to benefit from long-term capital flows (especially from abroad) in the coming days. All in all, therefore, the environment for the DAX remains favorable.

by Joachim Goldberg

19 March 2025, © Goldberg & Goldberg für boerse-frankfurt.de

Der Börse Frankfurt Sentiment-Index bewegt sich zwischen -100 (totaler Pessimismus) und +100 (totaler Optimismus), der Übergang von positive in negative Werte markiert die neutrale Linie. 

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