ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

European equity fund flows collapse

Investors have paused their aggressive buying of European equities. Net inflows recorded the steepest monthly drop since January 2016, falling to just €533m in August according to Morningstar data. Can the strong euro be blamed?


PA Europe

European stock markets received a sudden boost from mid-April to mid-May following Emmanuel Macron’s win in the French presidential elections. This resulted in investors committing a net €22.6bn to the asset class over four months.

But the investors haven’t quite seen the returns they perhaps hoped for as European equity markets have trended downwards since the second half of May. A chief reason for that has probably been the strengthening euro, which started to bite into company earnings forecasts. The common currency gained 11% against the dollar from January to the end of August this year.

The euro’s rise has stalled in September, giving European equity markets some breathing space to find their way back up again. The currency hit a one-month low this week after the surprisingly large seat loss of Germany’s governing coalition during parliamentary elections threatened to dent Chancellor Angela Merkel’s standing.

Equity fatigue

August wasn’t a good month for equity fund managers anyway. Total net inflows into equities reached only €1.5bn, the lowest score since November last year, and all major equity asset classes saw a reduction in appetite. Emerging market equities were the only asset class to see net inflows exceed the €1bn mark.

Emerging market equities was also one of only three asset classes where active managers did not see net redemptions in August, the other two being investment-grade corporate bonds and emerging market debt.