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Investors clamour for European stock funds

Investors poured $6bn of new capital into European stock funds in the past week, underlining the voracious appetite for assets across the continent as growth accelerates, earnings recover and several of the bloc’s largest countries move past critical elections.

The amount of flow in the five days to May 10 is the first time the weekly amount has passed $6bn since at least 2000 when EPFR began tracking the data.

The flows into funds that invest in European stocks mark a vote of confidence for an asset class that suffered a bruising 2016. During the year investors withdrew nearly $100bn as central bankers worked to tackle deflation and the UK’s Brexit vote fuelled uncertainty.

The defeat of Marine Le Pen in the French presidential election has allowed investors to breathe a sigh of relief over near-term risks to the euro, after political uncertainty added to investor reluctance to own eurozone stocks over much of the past year.

“Thanks to the macro interventions from the central banks . . . a tipping point has been reached,” said Vinay Pande, head of short-term investment opportunities at UBS Wealth Management.

“What has clearly helped tip us over was the data, GDP numbers that were outperforming the US. Earnings growth in Europe has been even better than in the US. And the last thing was the political risk. With that out of the way, the law of gravity must take over.”

Allocations to French stocks surged from a week earlier to more than $1.7bn following the election, while $2bn was added to dedicated German equity funds. Separate flows tracked by Lipper, which tracks only US-based funds, put inflows to European stocks at the second-highest level in records that date to 1992.

Benchmark stock indices in France, Germany, Spain, Italy and Switzerland have advanced more than 10 per cent this year. Economic growth at the start of the year matched the solid end to 2016 while surveys of manufacturers show activity is accelerating at a faster pace than in the US.

Unemployment across the region has receded from post-crisis highs with more than 1m jobs created in the eurozone last year, while inflation has firmed.

The shift into Europe has come at the expense of US stock funds, which suffered their second consecutive week of outflows despite the S&P 500 briefly touching a new high. Investors pulled $2.4bn from US stock portfolios in the past week, lifting redemptions since the middle of March to more than $20bn.

“When investors see months go by without the US market doing anything and people see European markets rip up . . . that has started to point investors east from the US,” said Brian Nick, chief investment strategist at TIAA Investments. “These regimes tend to last for a few years.”

Via FT

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