Graphic: European equity funds see biggest outflows since Brexit referendum

SEI Investments

08/09/2022 14:34

By Patturaja  Murugaboopathy 
    Sept 8 (Reuters) - Investors are dumping European stocks
this year, seeking to minimise exposure to a region buffeted not
merely by soaring inflation but also an energy crisis wrought by
the Ukraine-Russia conflict. 
    Yet, despite worries over a global economic recession,
rising policy rates and an earnings slowdown, fund managers are
shopping for stocks in most other parts of the world.
    According to Refinitiv Lipper data, European equity funds
have witnessed outflows worth $31.2 billion in the first eight
months of this year, the biggest since 2016, when recession
worries mounted after UK's exit from the euro zone.
    At the same time, U.S. equity funds have lured a massive
inflow of $72.69 billion, while Asian equity funds obtained $983
million. 
    "While inflation, growth and monetary policy concerns are
global in nature, Europe is uniquely exposed to the
Russian-Ukraine conflict which has exposed the fragility in the
continent’s energy infrastructure," said Jim Smigiel, chief
investment officer at SEI Investments.
     "With no end in sight to the conflict and winter fast
approaching, uncertainty will continue to weigh heavy on
investors’ minds when it comes to allocating assets to Europe."
    The MSCI Europe index  .dMIEU00000PUS  has fallen 25.2% this
year, compared with the MSCI United States index's
 .dMIUS00000PUS  decline of 17.5% and the MSCI All Country Asia
Pacific's  .MIAP00000PUS  slump of 22%. 
    
    WEAKER EARNINGS OUTLOOK
     Analysts said European firms' weaker earnings outlook has
also deterred investments in the region. 
    Recent data showed manufacturing activity across the euro
zone shrank for a second month in August. On the other hand,
U.S. manufacturing grew steadily in August, and its new orders
index also rebounded, suggesting strong demand for its products.
    Morgan Stanley said leading indicators such as the
Purchasing Manager's Index (PMI) point toward a 10% fall in
European earnings in the next six months.
    "With corporate pricing power starting to fade, the margin
outlook for corporates is likely to get much more difficult next
year," Morgan Stanley analysts wrote. "Our margin indicator is
pointing towards the biggest decline in margins since the global
financial crisis."
    According to Refinitiv data, large- and mid-cap companies in
Europe are expected to post earnings growth of just 0.3% in
2023, compared with such U.S. firms' growth of 7.7% and
Asia-Pacific firms' 11.8%.
    Also, the euro's  EUR=  slump against the dollar this year
is a reason for big outflows from the region, analysts said. 
    Both the Federal Reserve and the European Central Bank have
taken aggressive steps to combat inflation by hiking their
interest rates this year. Yet, the euro has fallen over 12% so
far in 2022. 
    "The added attraction of U.S. dollar assets is potentially
an additional tailwind to flows out of Europe," said SEI
Investments' Smigiel. 
    
     
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Fund flows in the U.S., European and Asia Pacific equities funds
   https://tmsnrt.rs/3cUrZRo
Breakdown by region for global equities performance this year   
https://tmsnrt.rs/3TTnYgn
Biggest money outflows from European equities funds in August   
https://tmsnrt.rs/3ROF5yn
Breakdown by region for corporate earnings' growth estimates   
https://tmsnrt.rs/3D8aEiw
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting By Patturaja  Murugaboopathy; Additional reporting
by Gaurav Dogra in Bengaluru; Editing by Maju Samuel)
 ((patturaja.murugaboopathy@thomsonreuters.com;))