A resurgent Europe has gathered rising equity fund flows in recent weeks, while the political impasse in Washington has led many investors to withdraw money from their US equity funds.
Net new money flowed into European equity funds for the fifteenth week in a row, according to figures from October 11 from data firm EPFR Global – the longest streak since 2002.
In contrast, a report by data provider Morningstar says investors redeemed a net $3.3 billion (€2.4 billion) from US equity funds in September, the biggest net redemption from these funds this year.
US equity funds still account for a much larger proportion of year-to-date inflows than European ones – nearly $80 billion, compared to a year-to-date net inflow of $19 billion for European equity funds – but this lead could be eroded if investor fears of US debt default continue to plague the market.
This week, the head of the International Monetary Fund, Christine Lagarde, said a US default would mean “massive disruption the world over... we would be at risk of tipping yet again into recession”.
Mark Tinker, head of Axa Framlington Asia, says the US government showdown “remains part of the ‘wall of worry’ for markets, adding an unnecessary layer of uncertainty”.
However, Tinker disputes the idea put across in some parts of the media that the Republicans in the US are acting irrationally by seeming to put the world economy in danger. Republican candidates are worried about losing their seats to right-wing Tea Party candidates, he says, and cannot be seen to cave in on the budget even if they would privately be happy to vote to raise the debt ceiling.
Neither are the Democrats free from the charge that they are risking economic collapse to gain political points, he adds.
“One gets a sense that the Democrat party strategists are willing a market collapse as a weapon to beat the Republican party, truly a case of politics over economics,” he says.
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