European equities have seen a three-month streak of net outflows now, with both active funds and ETFs suffering large redemptions. It’s the first time this has happened since the second half of 2014, and the outflows have actually grown larger by the month, reaching €8.5bn in April according to fund flows data from Morningstar.
The outflows are somewhat conspicuous, considering that very few fund buyers in Europe have actually been planning to reduce their exposure to European equities recently. However, our latest asset allocation sentiment data collected in Luxembourg, a microcosm of European finance, show that appetite for European equities is on the wane. This still doesn’t explain the intensity of the sell-off though, so we’ll keep a close eye on it over the coming months.
GEM equities: the exception
Japanese and UK equities are experiencing similar sell-offs, suggesting equities in general are starting to lose favour with investors. There is one exception, however: emerging market equities. Following a pattern of negative correlation we have observed before, global emerging market equities experience net inflows when European equities see net outflows.
Investors chipped in €2.9bn into GEM equities in April, two thirds of which went to index trackers. Expert Investor’s investment sentiment data prove a more reliable guide here than they do for European equities. Since the end of last year, the share of fund buyers intending to increase their allocation to global emerging market equities has edged up considerably. Since December, close to four in 10 of your peers have said they want to increase their allocation to the asset class. These intentions now seem to have translated into flows.
The interest in emerging markets looks to a large extent like a bet on a commodity rebound. While interest in global emerging market equities has soared, Asia ex-Japan equities have suffered outflows every month of the year so far.
Here you can see a full overview of all the latest fund flows.