There were two notable developments in the latest BofA European fund managers survey. The first is that unlike recent months when everyone was convinced the latest Greek episode would have a quick and simple happy ending, now there is an identical split when it comes to expectations of what the fate of Greece will be with the same number of respondents (43%) saying a last minute Greek deal will be cobbled together to kick the can once again, as the managers who think Greece defaults (first to the IMF then to everyone else) but is not kicked out of the Eurozone. Only 15% still believe a full-blown Grexit is in the cards. BofA’s comment appears superfluous: “We believe a peaceful Greek outcome is a necessary condition for a rally.”
But while the optimistic bias is shifting, if slowly, one place where the “fund managers” are at least admitting that things are changing for the worse in Europe is their latest, June, estimation of the biggest tail risks. Here, while “geopolitical crisis” and a behind-the-curve Fed still remain in the top two “tail risks”, at 21% and 20% respectively, just as they were last month, what is concerning is the third most prevalent fear which, at 18%, is a Eurozone breakup.