European equities suffer big outflows

European equities staged a relief rally on Friday after the results of the referendum in Scotland showed the United Kingdom will remain intact, but this may be due to money coming back into shares, rather than to any new investment.

Data from the research departments of two major banks showed that money has been flowing out of Europe over the past week, just as the take-up of the European Central Bank’s first targeted long-term financial operation (TLTRO) disappointed.

European equities saw their biggest outflow since April 2012 in the last week, data from RBS’s Global Flow Monitor show.

Developed European equities have been in a negative flow territory for three weeks, with last week’s outflow representing 0.25% of assets under management, according to the data.

European Equities Flows

European equities flows versus developed Asia and North America. Source: RBS

Data from Bank of America Merrill Lynch show outflows from European-domiciled equity funds last week at the worst level since May 2010. Year-to-date, these funds have seen inflows of $31 billion — but suffered $13.6 billion of outflows over the past 13 weeks.

This seems to indicate that investors are getting out of riskier stocks and into the relative safety of bonds.

By contrast with equities, flows into high-quality, investment grade debt “have been stellar” in the past two months, with the year-to-date total rising to $45.5 billion, according to a Bank of America Merrill Lynch report.

European equities versus bond

European equities flows versus flows in bonds. Source: BofA Merrill Lynch

If inflows into high-grade credit funds continue at the same pace, they are likely to see a total of $64 billion coming in this year, the bank’s analysts predict.

Many analysts have warned that European authorities underestimate the danger of deflation for the eurozone and have decried the lack of desire of governments to ease up on austerity in order to boost growth.

This could be one of the reasons why investors have become more pessimistic on European equities and have pulled money out of the markets over the past few weeks.

The RBS report showed that the biggest flows into equities took place in North America, which saw inflows of 0.24% of assets under management (AUM).

Overall, emerging markets equities funds saw their first outflows since June, with emerging Europe seeing 0.18% of AUM moving out and emerging Asia 0.12%.

Latin American equities continued to see inflows but they were very weak, at 0.02% of AUM compared with the previous week’s 0.34%.

@AntoniaOprita