At last! Investors show enthusiasm for Europe

Thumbs_up_hopeTwo consecutive weeks of positive retail money inflows to equity funds indicate a potential source of support for the shares market, which have seen gains in the UK and Europe recently.

Taken together with a rebound upwards in safe haven sovereign debt yields in Europe, the continent’s bond and equity markets are both showing an improvement in outlook, says Dan Morris, global strategist at JP Morgan Asset Management (JPMAM).

“There’s been a welcome rebound in safe haven sovereign debt yields as the bond markets have begun to reflect the same improvement in outlook as equity markets have been showing since the beginning of the year,” he said in an investment report published today.

The inflows to equity funds totalled $9 billion (€6.95 billion), according to JPMAM.  Morris noted that the $150 billion of flows last year into US treasury funds neatly matched the outflows from equity funds at the time and says this could quickly move back into equity funds if retail investors begin to feel less anxious about the market.

According to Stefan Angele, head of investment management at Swiss & Global Asset Management, investors generally appear to be showing optimism for markets as positive data from the US emerges against a backdrop of still negative news elsewhere.

“Investor sentiment remained supported by positive economic data from the US and proved resilient in the face of the recent S&P downgrades,” Angele said on Friday. Asian and some European equity markets gained more than 4% for the week, he noted, while in fixed income US and German yields started to increase, leading to a negative price return.

Positive sentiment about Europe can be seen also in fund flows tracked by EPFR Global. Its Europe Bond category saw its biggest weekly inflow in over two years last week and this was put down to investors’ hopes that the eurozone debt crisis will be brought under some degree of control and its broader risks contained following the International Monetary Fund’s request for additional resources.

But the firm also pointed out that, according to its data, investors continue to book returns in European equities, having redeemed money from these funds for 35, 29 and 28 consecutive weeks.

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