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Lure of European equity among selectors down before selloff

European fund selector sentiment towards European equities had dropped 6% over the last quarter of 2017, and 27% over the last six months of the year, the data found.

The research found that the asset class had continued to correct after a very sharp switch-up in March. However, while European equities remain net positive in sentiment generally, the direction is sharply down.

“It [European equity sentiment] is not negative but we know from past experience that this can potentially signal future net outflows from the asset class, especially on the back of a very successful 2017, which saw €37.5bn net go back into European equity funds,” the research said.


Market sell-off

The drop in pan-European sentiment preceded Monday night’s dramatic Dow Jones Industrial index crash which was followed by Asian markets, and then Europe markets.

The Dow dropped 800 points in 10 minutes and eventually closed at -4.6%, and the S&P 500 at -4.1% on Monday – the worst day since August 2011, according to Deutsche Bank’s macro strategy report.

The report noted that at the same time the VIX index saw its biggest daily climb ever, both in percentage and absolute terms at +116% and +20 to 39.32.

“The Stoxx 600 however tumbled -1.56% (on 5 February) and suffered its biggest one day and two day fall (-2.92%) since July 2016, while the six-day tumble of -4.64% is the biggest since June 2016,” the report said.

“It’s worth highlighting that the moves in the last two days have now pushed most major US/European markets into negative territory year-to-date.”

Fidelity International’s multi asset chief investment officer, James Bateman, said while the markets had seen a pullback over the last few days, this was not news.

“Yet in a world where the concept of a ‘correction’ almost feels alien and where equities felt like an unstoppable one-way bet for a while, the normality of a setback can feel more painful,” he said.

“Holding this course as volatility eases won’t seem easy – but at this stage of the cycle, the money is made by keeping your head when others are losing theirs.

“But what we have seen is perhaps the greatest sign of real health in markets for a long time. The tech-fuelled rally in the US had long lost any sense of reality in its valuations, the prospect of inflation remaining low forever could not last, and we have a new and untested Fed Chair. It would be more worrying if markets didn’t react to all of this.”

French demand

Looking at sentiment for European equities within Europe, the Expert Investor research also found that French, Spanish, and Belgian fund selectors had higher interest in the asset class than those in the Nordics region.

Over 60% of French selectors said they intended on increasing their European equity holdings over the next 12 months, compared to the pan-European average of 36%.

The French were also bullish towards global emerging markets, and Japanese equities and this was much more so than many other countries.

Jassmyn Goh

Jassmyn reported from Sydney to New York to Jakarta before joining Expert Investor. She was most recently Features Editor at Money Management and Super Review in Sydney.

Part of the Mark Allen Group.