Flows Into European Stock Funds This Year Are Outpacing the U.S.

  • Brighter outlook for economic growth, earnings drives optimism
  • Barclays advises investors to stay long European equities

JPMorgan Strategist Is 'Cautious on U.K. in General'

Fund managers have poured more money into European stocks this year than they have into U.S. shares.

European equities saw a 13th straight week of inflows in the week to June 21, according to a Bank of America Merrill Lynch note citing EPFR Global data. In contrast, redemptions of U.S. stocks were the biggest in five weeks. Year-to-date, money managers have invested $20.4 billion into European stock funds, exceeding the $15.9 billion that has gone into U.S. peers.

That’s despite a slowdown in this year’s European equity rally in June. The region’s benchmark Stoxx Europe 600 Index is heading for its first monthly decline since January, set to trim a 2017 gain to 7.2 percent, dragged lower by retail and energy shares. The gauge has advanced this year, propelled by optimism over economic growth and improving earnings, as well as Emmanuel Macron’s victory in France’s presidential and parliamentary elections.

“For the first time in several quarters, upside policy risks in Europe might outweigh downside political concerns,” Ajay Rajadhyaksha, Barclays Plc’s head of macro research, wrote in a note this week. “Investors should resist the contrarian temptation to retreat from equity risk, in part because safe assets are similarly richly valued.”

Barclays advised investors to stay long European equities, noting that despite the recent outperformance, they still trade at a discount to the U.S. The S&P 500 Index is trading at 17.6 times forward earnings, while the Stoxx 600’s multiple is at 15.2.

European Central Bank President Mario Draghi this month said risks to euro-area growth are “broadly balanced,” an upgrade from the ECB’s previous assessment. Analysts expect profits at Stoxx 600 members to grow 14 percent in the 2017 financial year. Rebounding earnings and an accelerating economic recovery, combined with receding political risks, will support Europe’s equity market, Barclays said.

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