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European equity fund inflows hit 12-month high

European equity funds attracted their largest weekly inflows in more than a year as institutional investors bet on a recovery taking hold across the continent.

Investors added $1.1bn to funds investing in European stocks in the seven days to February 22, a haul that nearly matched the inflows of the preceding four weeks combined, according to data from EPFR. This was despite outflows from dedicated French stock portfolios spurred by uncertainty over the country’s looming election.

The inflows accompany firming inflation and economic data across the eurozone, which on Wednesday showed prices across all of the group’s member states rising for the first time in nearly four years. Closely scrutinised business activity surveys have also improved to near six-year highs.

“Institutional investors have been buying into the equities rally that started in the middle of last year for over three months now,” said Cameron Brandt, EPFR’s research director. “But retail investors are still keeping their distance. Political risk remains the biggest reason that retail investors are reluctant to chase these gains.”

Inflows of nearly $1.6bn from institutional investors offset the 16th consecutive week of outflows from retail investors, who drained roughly $500m from the asset class in the past week. Institutional investors have added $5.7bn to European equity funds since the start of the year.

Redemptions from funds investing exclusively in French equities in the week to February 22 were the largest since October, while Dutch stock funds posted their 13th outflow in the past 14 weeks as elections loom in both countries.

“Global investors seem to be hyper aware of the political threats posed by populist parties throughout Europe, particularly with elections in France, the Netherlands, Germany and possible Italy this year,” said David Kelly, a strategist with JPMorgan Asset Management.

“However, in each case, the populists still look unlikely to win a governing position. If this continues, then European election results this year could actually reduce uncertainty and boost both the euro and stock prices.”

Spanish equities proved more appealing, with inflows in the week climbing to a 22-month high.

While most big European equity indices have advanced in the past three months — including an 11.8 per cent jump in the German Dax and 9.7 per cent rise by the Spanish Ibex — most have lagged behind the US’s S&P 500 since the year began.

US stock funds enjoyed a second straight week of inflows as the benchmark S&P 500 closed at record highs, with $3bn added to its portfolios in the last week. Overall, global equity funds received $8.5bn in new capital over the week, while bond funds attracted $7.6bn.

Investors continued supporting emerging markets, with equity funds attracting inflows for the seventh straight week., albeit at a slower pace.

“Moderating expectations for US rate hikes, evidence of growth in key export markets and renewed enthusiasm for the Bric [Brazil, Russia, India and China] theme drew investors,’’ said Mr Brandt. Equity funds for Brazil recorded their biggest inflow since the final quarter of 2014. The Bovespa index has risen 12 per cent so far this year and is up 19 per cent in US dollar terms.

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