While you wouldn’t know it from the recent price action, investors are falling out of love with European stocks.
According to new research from Amit Shrivastava, Robert Parkes and Eshan Raka, equity strategists at HSBC, investors globally have yanked $US129 billion from equity funds since the beginning of the year, the largest annual outflow on record (at least so far) dating back to when data was first collated in 2007.
Unsurprisingly, Shrivastava, Parkes and Raka note that substantial outflows from European markets — both before and after the UK Brexit referendum — contributed substantially to the global movement out of stocks.
“European equity funds are into their 21st consecutive week of outflows, the longest weekly sequence of negative flows since the last (2008) financial crisis,” the trio wrote in a note released on Thursday.
“Within European markets, our analysis suggests that UK equity redemption’s have gathered pace post the Brexit vote.
“Whilst UK equity funds registered positive flows up until early May 2016, year to date they have now posted an outflow of $US8.6bn. It is worth mentioning that more than 60% of outflow from UK equities in 2016 has been after the outcome of the UK referendum on EU membership,” they add.
The chart below, supplied by the bank, looks at the trend in equity fund flows for major European markets so far in 2016.
And, as the next chart shows, a lot of the outflows from equity funds have been funneled to another asset class: bonds.
Shrivastava, Parkes and Raka expect the trend seen so far this year will likely continue.
“Europe remains the only region which continues to see money heading for the exit,” they wrote. “We expect European equities to continue to see fund outflow due to elevated level of market uncertainty following the Brexit vote.”
The third and final chart, again supplied by HSBC, reveals that while funds have continued to flow out of European stocks since the Brexit vote, that hasn’t been replicated in emerging markets, developed Asia or North America.
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