Posted inEquitiesSOUTHERN EUROPEUnited States

Spanish investors rediscover an old love

As markets have recently proven resilient against political volatility and economic growth in the Eurozone is picking up, appetite for European equities has returned just as quickly as it had dissipated: two thirds of Spanish fund buyers plan to increase their allocation to the asset class in the next 12 months.

The Spanish are generally among the most loyal fans of European equities. While net redemptions from European equities totalled a record €69bn in 2016 according to Morningstar data, Spanish investors bucked this trend: they invested a net amount of €550m in European equity funds over the past year, according to the Spanish asset management association Inverco. It’s just a modest amount for their standards, but still a contrarian bet.

The more remarkable it was that appetite for European equities had plummeted to just over 20% after the US elections and the Italian referendum: ever since we started to gather Spanish investor sentiment data more than four years ago, the share of those planning to increase exposure had never fallen below the 40%-mark.

Trump bump

Just as they were going cool on Europe, Spanish fund buyers went big into US equities: they were strong participants in the rally that followed Donald Trump’s surprise win in the US presidential elections, investing a record net sum of €325m in US equities over November and December.

However, when our researchers visited investors in the Basque country and Madrid in January, they found that the US equity surge was likely to be short-lived. Local fund buyers told them 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.

Therefore, US equity bears once again outnumber the bulls, as has been the case over most of the past three years. But interest in the asset class still remains somewhat higher than prior to the presidential elections.

 

Part of the Bonhill Group.