Posted inEmerging MarketsSOUTHERN EUROPEEquitiesEurope

European equities lose shine for Catalan fund buyers

The long-lasting love affair of Catalan investors with European equities has come to an abrupt end this year, and there is no sign the standing of the asset class will be restored any time soon. Most fund buyers our researcher met on his trip to Barcelona this month told him they are now underweight European equities, for the first time in a long time.

They had decreased their positions in the wake of the market correction in the beginning of this year, and have remained cautious since. The share of interviewees planning to increase their allocation to European equities has almost halved to 33% since October 2015. As many investors went into the Brexit referendum in June with a conservative asset allocation, its unexpected outcome was a timely reminder of the political risks engulfing the asset class at the moment.

 

 

The political uncertainty in Europe is holding back most of Barcelona’s fund buyers from increasing their allocation, but that doesn’t mean they are any more positive about other developed markets. To the contrary, US equities are still considered expensive as the S&P 500 is touching record highs, even to such an extent that none of the interviewees expressed the intention to increase their allocation. Japanese equities also fail to excite. Sellers outnumber buyers by a factor of three, as Abenomics increasingly looks like a failure and returns are very much dependent on the fortunes of the yen.

EM – a relative bet

Most equity asset classes look increasingly unattractive for various reasons. This makes global emerging market equities look comparatively appealing. As they offer insulation from political turmoil in Europe and the US, they even look like a safe bet in some respect. And Catalan investors buy this narrative. A record two thirds of them plan to increase their allocation to the asset class in the next 12 months. This is significantly more than the Pan-European average of slightly over 40%. According to fund flows figures from the Spanish asset management organisation, however, the GEM buying spree is yet to start. Year-to-date, net flows have been marginally negative.

Part of the Bonhill Group.