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Basque investors regain lost love for European equities

In early December, the share of Spanish fund buyers planning to increase their allocation to European equities had sunk to a record low of just over 20%. When our researcher visited Bilbao last week, local fund selectors told her that they indeed had been reducing their overweight position in European equities to neutral over the autumn. This corresponds somewhat with fund flows data provided by the Spanish asset management association Inverco, that show net outflows of €24m from European equity funds in December.

However, Bilbao’s fund buyers are already in the process of reversing their decisions to reduce allocation, as the increasing political uncertainty in Europe is not seeming to affect markets much. And the positive GDP growth numbers for the EU published this week (GDP growth of 1.9% for 2016) will only serve as an additional reason to beef up their European equity positions.

Trump doubts set in

Spanish investors initially were strong participants in the rally that followed Donald Trump’s surprise win in the US presidential elections. They invested a record net sum of €325m in US equities in November and December.

Interviewees said they now even consider the uncertainties surrounding Trump’s policy priorities and the potential damage these could do to the US economy as more troubling than the political situation in Europe. All interviewees agreed that the US equity market has priced in overoptimistic expectations about what Donald Trump will achieve during his presidency.

Trump’s election has also clouded the outlook for emerging market equities, Basque fund selectors believe. Emerging market debt funds, which saw heavy losses in the wake at the end of last year, are back in favour as the asset classes has embarked on a strong recovery in the new year.  

Part of the Bonhill Group.