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US investors are piling into European equities at a pace not seen since the late 1990s.
US purchases of European stocks swelled late last year to the highest since October 1996 relative to the size of European equity markets, according to figures compiled for the Financial Times. The trend continued in the early weeks of 2014, reports EPFR, the funds’ data provider.
Despite lingering concerns over growth prospects in peripherals, Spain and Italy were among those European countries seeing the strongest US inflows into their equity markets last year. The UK and the Netherlands also drew sizeable inflows.
Last year saw “something of rotation” in global share markets, said Cameron Brandt, EPFR research director. “People got out of emerging market equities but were looking for the same kind of risk-reward profile, which they found in southern European markets.”
The inflows also reflected greater confidence in European growth prospects and the stability of its monetary union. In addition, US investors took the view that after strong rises in US share indices, European stocks offered better prospects for further gains, analysts said. While the S&P 500 index has risen 23 per cent since the beginning of 2013, the FTSE Eurofirst has increased by just 12 per cent.
“US flows into Europe tend to be associated with periods when European stocks are particularly cheap relative to book values. There is still a value tilt in Europe for US investors,” said Ian Scott, head of global equity strategy at Barclays.
US and European stock markets fell this week on fears that the recent rout in emerging market currencies could have wider consequences. However Thursday saw some recovery. The FTSE Eurofirst 300 index closed 0.5 per cent lower than last Friday’s close. The US S&P 500 was broadly unchanged.
Dollar inflows into western European equity funds so far this year had reached $4.67bn by Tuesday. That was almost half the $10bn in total outflows, in all currencies, over the same period from emerging market equity funds tracked by EPFR.
US net purchases of European shares reached 0.75 per cent of the total market value of European equities in November, on a rolling 12-month basis, according to figures calculated by Barclays using US Treasury data. That was higher than the peak in July 2007 before the eruption of the US subprime mortgage crisis. At the height of the crisis in February 2009, US investors sold European equities at a record pace, and there was also a significant sell off in 2010, when Greece triggered the eurozone’s debt crisis.
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