European equities are back, says ratings agency

European flagsMore than €12 billion of net new money flowed into European equity funds in August, the highest monthly flow in six years, according to figures from ratings agency Fitch Ratings.

Investors may have responded to a rally in European stocks that saw the MSCI Europe index rise more than 5% in July.

European equity funds seem also to have benefited from investors moving their money out of emerging market equity funds, which have performed poorly this year.

“These inflows reflect a combination of investors’ reallocation from emerging markets and a less depressed economic environment in Europe,” says a report by the company.

“Outflows witnessed in March/April this year appear to be a brief interruption in a one-year net new money dynamic on this universe,” adds Fitch Ratings in a statement.

Fitch Ratings says the returning optimism about the European economy means growth stocks have become less attractive relative to value stocks, causing the performance of some well-known growth equity funds to falter.

The ratings agency also says small and mid-cap equities have delivered better performance than large-cap equities so far this year.

Investors who are bullish about European equities may share the views of German finance minister Wolfgang Schäuble, who recently wrote an article called Ignore the doomsayers: Europe is being fixed, in which he claimed Europe's “cool-headed crisis management” had solved the eurozone debt problems.

However, critics of Schäuble have pointed out that unemployment is as high as 27% in troubled south European states such as Greece and Spain, and that Italy's debt ratio has risen to 130% of GDP as a result of the crisis.

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