Redemptions from European equity funds have approached $100bn as investors race out of an asset class that has been rattled by the uncertain health of the continent’s financial sector.
Funds invested in European stocks suffered $1.9bn of withdrawals in the week to September 28, the 34th consecutive week of outflows, according to fund flows tracked by EPFR. The exodus since mid-February has reached $95bn, the data show.
Anxiety over the health of the European banking system, which recently culminated with a rise in short interest in Deutsche Bank, has persisted from the year’s start and weighed on the region’s nascent recovery.
The European Central Bank has unleashed a wave of stimulus in a bid to rekindle growth and inflation, but has been unable to shake investor concerns. Flight from European stocks has been fanned by a troubled Italian financial sector as well as the UK’s Brexit vote, which is seen as a weight on economic activity throughout the bloc.
Deutsche Bank was thrust to the fore after a report said German officials were drawing up contingency plans in the event it is unable to tap financial markets to meet regulatory requirements resulting from a US fine. The bank has emphasised its strong financial position, but that has not stopped some hedge funds from pulling part of their business from the German group.
“Deutsche Bank’s travails kept mutual fund investors on their toes during the final week of September,” said Cameron Brandt, director of research for EPFR. “Sentiment towards Europe took hits from the setting of a date for Italy’s constitutional referendum and the possibility of higher oil prices sapping regional consumer confidence.”
Gabriela Santos, a strategist with JPMorgan Asset Management, added that there was investor “frustration” over the poor performance in European stocks “driven by fears around financials”. Shares of European bank stocks have slid 28 per cent this year, compared with a 5 per cent fall by their US counterparts.
Investors instead turned to US equities in the latest week, with mutual funds and exchange traded funds invested in the asset class counting $4.2bn of inflows — the greatest weekly addition in more than a month.
The fragility of the European financial sector has been seen as an impediment to the Federal Reserve tightening policy, which has buoyed equity and bond markets, Mr Brandt noted. Overall, bond funds added $9.2bn in the latest week while stock funds took in $5.6bn, a five-week high.
Emerging market stock funds counted $1bn in new capital, lifting their haul since the start of July to nearly $19bn, while flows into EM bond funds hit a nine-week high. Developing market debt has attracted a flood of investor appetite as investors search for higher-yielding assets.
“There is this unrelenting drop in yields,” Ms Santos added. “But it is more than that. It is about the feeling that the worst is over for emerging markets.”
Sample the FT’s top stories for a week
You select the topic, we deliver the news.