Posted inEmerging MarketsEquitiesEuropeFixed IncomeUnited States

Investors put their money where their mouth is

Anticipating Emmanuel Macron’s victory in the French presidential election, investors channelled a net €3.1bn into European equities, according to Morningstar fund flows data. This meant inflows reached their highest level in more than a year.

A similar amount was taken out of US equities, as investors were reacting to US equities failing to discount the possible implications of an increasingly dysfunctional White House.

The shift from the US to Europe can’t have come as a surprise for Expert Investor followers: we reported last week that half of Europe’s fund buyers were planning to increase exposure to European equities, while almost four in 10 were reducing their allocation to US stocks.

Tim Peeters, head of securities portfolios at the multi-family office Portolani in Belgium, accurately summarised the European consensus view: “The short US, long Europe trade has done well this year, and I expect this to continue for a while,” he said.

Peeters therefore is planning to further increase his overweight to European equities, albeit not immediately. Though market volatility is relatively low now, he believes a market correction could be imminent.

“That’s the moment I would be buying. A correction of more than 10% happens at least once a year almost every year, and we haven’t had one yet, so I think it could happen soon,” he confides.  

Shift to Asia

Emerging market sentiment has been riding high too, notwithstanding a dip just after the US presidential election. Investors intending to increase exposure outnumber those planning to decrease their allocation by a huge margin.

Emerging market equity and debt remain the best-selling asset classes with European investors: EM equities have seen net inflows in excess of €2bn for three months in a row now, though April saw investors shifting their focus from GEM funds to Asian equities: Asia ex-Japan funds were responsible for almost all the net inflows into emerging market equities last month, reaching €3.4bn, the highest level in three years.

Emerging market debt, meanwhile, topped the selling charts for a fourth consecutive month, with net sales amounting to €7.4bn. As the bulk of EM debt solutions available have a global reach, bond investors haven’t made the ‘pivot to Asia’. The bulk of the money flowed to actively managed hard currency funds.

Part of the Bonhill Group.